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cities: density, proximity, and vibrancy. But they require deliberate planning and development to achieve the unique advantages needed for the innovation economy—clustering of anchor institutions, growth-oriented companies, and cultural amenities, all concentrated in a well-identified zone. Halifax possesses an emerging innovation district with the potential for significant scale-up to support the increased recognition and growth of the entire Atlantic Innovation Ecosystem. With a metro area population of almost half a million, Halifax also has an impressive portfolio of advantages needed to support a thriving community of innovative businesses. These advantages include the essential requirement of direct air connections to major cities in Canada, the US east coast and Europe; a regional hub financial centre; a rich endowment of educational and top-flight research institutions; an established oceans-related innovation cluster; and a vibrant startup community25. The Halifax innovation district is greatly strengthened by its synergies and connections with the other urban nodes in the Atlantic Innovation Ecosystem, which are reinforced reciprocally by connection both with each other and with Halifax. The regional character of the ecosystem is reflected in the pan-Atlantic involvement of Build Ventures, Propel ICT, First Angels Network, and the connections among leading incubators such as Volta, Planet Hatch, Venn and Common Ground. This co-operating network is necessary but not yet sufficient to create the scale required for the Atlantic ecosystem to compete globally. Halifax, by virtue of its relative size, transportation links, and regional institutional infrastructure, therefore needs to play an anchoring role so that the Atlantic Innovation Ecosystem can achieve the scale needed to realize its full potential. The reward—not only for Nova Scotia but for the whole Atlantic region in view of the interconnected regional ecosystem—would be a place of real significance in the knowledge and technology dominated economy now rapidly taking shape in all the advanced nations. For this to happen, the Atlantic Provinces, with support from the federal government, must collaborate. Clearly it is important for Canada to build on innovation strengths and scale in Toronto-Waterloo, Vancouver, Montreal and Ottawa. But today, the sky-high cost of living in centres such as San Francisco, and Boston is driving the emergence of new innovation ecosystems in the U.S. in more affordable jurisdictions such as Pittsburgh, Nashville, Salt Lake City, Kansas City, Madison WI, and Boulder/Denver. Because the situation in Canada is becoming similar—driven by rapidly rising costs in the largest centres like Toronto and Vancouver—we need to “go where

25AccordingtotherespectedBranhamReport,justunderaquarterofthetop“ICTUpandComersinCanada”in2015werelocatedinHalifax;allbutoneaVoltatenant.ThisputHalifaxfirst,andNSsecondonagrossbasisinCanada,andfarandawaythebestonapercapitabasis.

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the puck is going to be.” Halifax is one of those places. From a portfolio perspective, therefore, Canada needs to diversify its high potential regions to include Halifax’s innovation district and the linked Atlantic Innovation Ecosystem. The region is under-recognized relative to its considerable assets, and therefore has untapped potential for above average returns on investments in its startup ecosystem.

To move forward will require a multi-year series of public and private investments to stimulate Halifax’s emerging innovation district (Fig. 3.3). This is the seed that is needed to generate growth, which creates attraction, resulting in further growth in a self-reinforcing process. Innovation districts are typically urban, rather than suburban corporate campuses and science parks that are

accessible only by car. Nevertheless, an innovation district benefits tremendously if it is readily accessible by transit to and from outlying areas. Moreover, proximity to the special character and lifestyle benefits of rural areas can be a significant advantage in attracting today’s creative talent who typically value both urban sophistication and the recreational amenities of the outdoors. Nova Scotia is fortunate in this regard because its compact geography, pattern of settlement, and resource diversity can facilitate a viable rural/small community economic strategy that offers the best of both worlds. Halifax provides urban dynamism and both direct and indirect economic support for the rest of the province, while the extraordinary resources of Nova Scotia’s rural areas and smaller communities—readily accessible to metro residents—make Halifax that much more attractive to footloose talent from around the world. Halifax therefore has the realistic potential to host among the leading innovation districts in North America. In view of the above-noted trend toward less costly locations as the innovation economy gathers momentum, the table is set. Investment in Halifax’s innovation district will in fact be a key investment in the Atlantic Innovation Ecosystem as a whole. The resulting benefit for the entire region is due to the increased scale that Halifax can generate. And only with greater scale will it be possible to create the needed increased awareness among external investors of the startup talent to be found in Atlantic Canada.

3.3 HalifaxInnovationDistrict

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3.7 Recommendation on a Regional Innovation Network and Urban Innovation Districts The Province and ACOA should establish a new fund, managed by Innovacorp, to support a network of regional innovation centres in Nova Scotia and the emerging “innovation districts” in Halifax and Sydney. a) Innovacorp, working with universities and NSCC, ACOA, and local communities would

determine the appropriate support to the regional innovation ecosystems. This should include financial support to establish or expand co-working space; the delivery of programs to foster innovation and entrepreneurship; and enhancing the role of post-secondary institutions as regional hubs for innovation and development in collaboration with the regional innovation centres.

b) The fund should support initiatives to further develop the “innovation districts” (i) in Sydney, which is helping to catalyze innovation-driven entrepreneurship in Cape Breton, and (ii) in Halifax, which has the potential to evolve to national scale and serve as the anchor platform for Atlantic Canada’s startup community.

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Annex ASamplingofInnovativeStartupsinNovaScotia26

Affinio:Affinioisapuregrowthstory.Foundedin2013bytechveteransTimBurkeandStephenHankinson,theHalifaxcompanyhasdrawn$5.5millionintotalinvestmentfromBuildVenturesofHalifaxandWhitecapVenturePartnersofToronto,amongothers.Ithasalsoattendedsomeoftheworld’sleadingmentoringprograms,includingMicrosoft’sSeattleAccelerator.WhathascreatedalltheexcitementisAffinio’sadvanceddatabasetechnologythatallowslow-cost,real-timeprocessingofsocialnetworkdatatodeterminehoweverypersononthewebisconnected.Itminespubliclyavailablesocialmediapostsandotherbusinessdatatofindpeoplewhoareconnectedbycommoninterests,experiencesornetworks.Affiniohadninepeopleonstaffwhenitclosedits$4million“SeriesA”VCroundinNovember2015,andanticipatesemploying60peoplebytheendof2016.GoInstant:ThesuccessofGoInstanthasattractedtheworld’sfastest-growingsoftwarecompanytoNovaScotiaandledtothecreationofauniversityprogramandastartupincubator.NotbadforasinglecompanythatbeganasaconceptbyagroupofCapeBretonUniversitystudents.Theideaofdevelopingco-browsingsoftwarewasthebrainchildofCBUgradsGavinUhma,KirkMacPhee,andDaveKim,whosharedtheschemewithInnovacorpEntrepreneur-in-ResidenceJevonMacDonaldin2011.Theyformedacompany,GoInstant,whichraised$1.7millioninseedcapitalfromSiliconValleyinvestorsandInnovacorp.In2012,theysoldthecompanytoSalesforce.comformorethanUS$70million.Sincethen,UhmahasfoundedUIT,whichisCBU’stechstartupprogram.MacDonaldhasbeenthedrivingforcebehindtheVoltastartuphouseinHalifax.AndSalesforcehasestablishedandgrownitsteaminHalifax.HalifaxBiomedical:Mabou-basedHalifaxBiomedicalInc.,ledbyChadMunro,hasdevelopedanimagingdevicethatallowstwosimultaneousX-raystobetakenfromdifferentangles.Thesystemcanhelpmeasurewhetherapatientishavingproblemswith(joint)implantfixation,reducingtheneedforarecallonimplants.Inlate2014thecompanyovercamebarrierstosellingthedevice,andfoundclientsinsomemajorU.S.hospitals.Itthenmovedunexpectedlyquicklyingainingapprovalwithanewproductfocusedonimagingthespine.ThecompanyisnowanISO13485medicaldevicecompany,whichmeansitishasthehighestapprovalratingformedicaldevicesintheU.S.,Europe,Canada,andAustralia.SpringLoadedTechnology:ChrisCowper-Smith,theCEOofSpringLoadedTechnology,showedthesamemarketingélaninwinningtheBDCYoungEntrepreneuroftheYearcompetitionashedidinlaunchinghiscompany’sLevitationkneebrace.ThecompanywasformedattheDalhousie“StartingLean”programandsincethenhasbeenworkingonabracethatgainsenergywhenthekneebendsandthenreleasesitwhenthekneestraightens,increasingthepowerofthejoint.HavingraisedmoneyfromtheFirstAngelNetwork,Innovacorp,andBuildVentures,SpringLoadedwasabletolaunchLevitationin2016.Itdidsoinacrowdfundingcampaign,andthankstothecompany’ssocialmediaprowessitreacheditstargetinthefirst48hours.Proposify:ThedozenpeoplewhoworkatProposifyinHalifaxgatheredtocelebrateakeymilestoneinthespringof2016–reachingmonthlyrecurringrevenueof$100,000.ForCo-FoundersKyleRackiandKevinSpringeritprobablyseemedthingscouldn’tgetanybetter.Thenafewweekslater,Timemagazineprofiledthecompany,highlightingthetenacityofitsfounders.ThepairstartedProposifytocreatesoftwarethatsimplifiesandenhancestheprocessofwritingproposals,mainlyforadvertisingandPRagencies.Itstreamlinestheprocessinthecloudwithonlineproposaldesigntemplatesthatcaneasilybecustomizedwithtext,images,videos,andcharts.WoodsCampWoodsCampaimstobetheworld’sleadingmanageroftimberwithinadecade.Giventhatthecurrentleader,WeyerhaeuserCo.,hasannualsalesofaboutUS$7billion,it’seasytoseethatthisyoungstartupinMahoneBayhashugeambitions.Co-FoundersWillMartinandAlastairJarvishavedevisedanonlineportalthatfacilitatesamarketforthe60%ofNovaScotia’swoodlandthatisprivatelyowned–ofteninheritedbyurbanpeopleunfamiliarwiththetimbertrade.WoodsCampusesopen-sourcedatafromtheprovincialgovernmenttotelltheownerswhat

26ThesevignetteswerepreparedbyPeterMoreiraforthisreportandhavebeeneditedslightly

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theyhaveontheirlotandwhatit’sworth.Thenitconnectsthemwithpeoplewhocanharvestandsellit.Itcreateswealthandencouragestheresponsiblemanagementofforests.SimplyCastTheinterestingthingaboutSimplyCast’sJuly2016announcementthatitsrevenuesincreased37percentin2015isthatitmadetheannouncementatall.TheDartmouthcompany,dedicatedtomarketingautomation,makesregularannouncementsonitsfinancialperformancesoitsteamofabout50employeesgetsusedtoregularreporting.It’sallpreparationfortheplantobecomeapubliclylistedcompany.FoundedbyCEOSaeedEl-Darahali,SimplyCasthasdevelopedaneasy-to-useplatformthatallowsmarketerstolaunchcampaignsovermultiplechannels.Its360CustomerFlowCommunicationPlatformcombinesmarketingautomation,inboundmarketing,andinteractivecommunication.SimplyCastnowhasclientsin175countries,andsaleshavebeenincreasingeachmonth.KinductTechnologiesTravisMcDonough,CEOofmedical-dataproviderKinductTechnologies,joggedontothestageattheLADodgersAcceleratorinNovember2015anddeliveredthepitchofhislife.McDonoughlastautumntookthecompany,whichhasbuilt“theworld’smostadvancedhumanperformancesoftwareplatform”throughtheaccelerator,whichtheDodgersoperatesforsportsandmediastartups.Kinduct’shumanperformanceplatformcanpulltogetherdisparatedataonathleticsandhealthandpresenttheminoneplace.Thecompanyhastheworld’slargestlibraryofmedicalanimation,whichisessentialintellingathleteswhatproblemthey’reexperiencingandhowtocureit.InNovember,morethan50proteamsandNCAAorganizationswereusingtheplatform.McDonoughsayseveryorganizationthatusedtheplatformin2014sawastatisticallysignificantimprovementinwinningpercentageandareductioninpreventableinjuries.MetamaterialTechnologies:FoundedbyCEOGeorgePalikaras,MMTIisdedicatedtomakingspecialmaterialsknownasmetamaterialsthatmanipulatelightasitpassesthrough.Palikarashasdevelopedmaterialsthatcanblocklight,filterlightorenhancelight.ThecompanystruckapartnershipwithAirbustoplacethematerialthatfilterslightovercockpitwindows,thuspreventinglaserattacksbypranksterswhichhavebecomeaseriousproblemforpilots.Inthespringof2016MMTIboughttheassetsofRolith,aSiliconValleycompanywhosepatentedlithographictechnologyallowsthemanufacturingoflargesheetsofthematerial.MMTI,whichpreviouslyraisedmoneyfromInnovacorp,FirstAngelNetworkandtheWilmingtonInvestorNetwork,hasspaceinInnovacorp’sincubatorinDartmouthandisworkingonapplicationsofitstechnologyasdisparateasmedicaldevicesandsolarenergy..SonaNanoTechSonaNanoTechstartedwithlittlemorethansomescientificresearchanda$50,000prizepackagefromInnovacorp’sSparkCapeBretoncompetition.TheSydney-basedcompanygrewoutofresearchbySt.FXprofessorsGerrardMarangoniandKulbirSinghintogoldnanoparticlesthatcanbeusedinthediagnosisandtreatmentofsofttissuecancers.Currentradiationtherapycandamagehealthyboneandtissue,andscientistshaveproventhatgoldnanorods–tinygoldparticles–candestroythecancercellsfrominsideatumorwithnoharmfulsideeffects.MarangoniandSinghdiscoveredacost-effectivemethodofproducinggoldnanoparticlesthatrequiresnotoxins,therebyreducingthehealthconcernsassociatedwiththeprocedure.Thecompany,whichraisedcapitalinthesummerof2015,struckapartnershipinDecember2015withStremChemicalsInc.,whichisservingasitsU.S.distributor.CompilrWhenPatrickHankinsonstartedCompilrin2011,hewasonly23andhadalreadybeeninvolvedintwostartups.Compilrbeganasacompanythatwouldallowprogrammerstowritecodeinthecloudratherthanonaserver.Buttheideagrewsoitbecameaneducationalsystemthattaughtpeoplehowtowritecode.Soon,revenuewasincreasing20percentpermonth.In2014,Compilrannouncedthatithadbeenboughtbylynda.com–thepricewaslaterrevealedtobeabout$20million.LyndawaslaterboughtbyLinkedIn,whichwasinturnboughtbyMicrosoft.Hankinson,nowaged28,hasbecomeanangelinvestorandisworkingonhisnextstartup.

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Chapter 4 GROWING INNOVATIVE EXPORTERS “National prosperity is created, not inherited. It does not grow out of a country’s natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists. A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.” —Michael Porter The previous chapter focused on technology-based early-stage companies—the “green shoots” of a new economy, and for which Nova Scotia is exceptionally well positioned. But these companies, critical as they are for the province’s future, contribute only a tiny fraction of today’s employment and exports. Nova Scotia’s economy is still, and for years to come, reliant on a small number of relatively large established companies and a large number of small and medium size enterprises (the SMEs) distributed throughout the province and forming the economic base of much of rural and small-town Nova Scotia. This chapter addresses these companies with a focus on those that are already exporting, or have the potential to do so. The export test separates the most dynamic businesses from the rest, and exports will largely determine the province’s growth given the flat to declining population of the local market. Therefore, those businesses that succeed and grow in the global market will be the primary drivers of Nova Scotia’s prosperity27. Export performance is the acid test of competitiveness over the longer term as the impact of fluctuations in currencies and business cycles average out. Successful exporters, almost by definition, tend to be innovative and growth-oriented. Compared with businesses that only operate domestically, exporting firms on average have greater productivity, faster growth, create more jobs, undertake more innovation, and tend to have better domestic market performance as well. In short, exporters are the principal source of dynamism in every economy.

Sustained export success depends on maintaining global competitiveness—the ability of a business to sell its products on a world market at a profit, and without relying on a weakening currency. This durable form of competitiveness is determined by the performance of individual businesses and depends on innovation, whether to make one’s product more attractive or to make it more cost-efficiently. Based on the metric of export performance, Nova Scotia has a serious competitiveness problem—some evidence:

• Exports as a share of GDP (averaged over 2010-14) were lowest among the provinces (Fig.

27ThemajorityofNovaScotia’sGDPandemployment(asisthecaseinallprovinces)isgeneratedindomesticsectorsincludingagreatdealinpublicservices,constructionandothersthatarerelativelyshieldedfrominternationalcompetitionthoughfew,ifany,arecompletelyimmune.Thesesectorsarehugelyimportant,anddominatetheeconomy,buttheyaremostlynotatthecuttingedgeofinnovationandproductivity,andtheirgrowthislargelylimitedbythatoftheprovincialpopulationandtaxbase.

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4.1) • On a per capita basis, Nova Scotia’s international exports ($5.5 billion in 2015) were only

40% of the national average. (Excluding fossil energy exports, the figure was 46%.) • The dollar value of international exports in 2015 was virtually the same as 15 years earlier,

reflecting primarily a 50% decline in forest and energy products combined, offset by healthy increases in rubber products (Michelin) and seafood (Fig. 4.2).

• Nova Scotia runs one of the largest interprovincial trade deficits—18% of GDP in 2015. If the province were a country, the “Bluenose Dollar” would be under severe downward pressure.

• There are relatively few export-focused firms in Nova Scotia--only about 900 companies that register exports, of which 320 produce more than three-quarters of the total.

Apart from Michelin, Nova Scotia’s exports are overwhelmingly resource-based and thus subject to the vagaries of global prices, the health and sustainability of the resource supplies themselves, and growing concerns related to environmental impact. This is a precarious position as illustrated, for example, by the 80% decline in the value of Nova Scotia’s energy exports from $1.6 billion in 2008 to $0.3 billion in 2015. The traditional resource orientation of the province’s exporters also largely accounts for the very low level of business R&D in Nova Scotia—the lowest relative to GDP among the provinces. (Recall Fig. 10 in the introductory chapter.)

A substantial degree of resource dependence is inevitable for a place like Nova Scotia given its natural endowment and upstream, commodity-oriented position in North American and global supply chains. These are

0% 10% 20% 30% 40% 50% 60% 70% 80%

NB SK NL MB AB ON PE QC BC NS

ProvincialExports(percentofGDP,annualaverage2010-2014)

ExportstoOtherProvincesExportstoOtherCountries

4.1

4.2PrincipalNovaScotiaExportsbyCategory($Million)

SECTOR 2000 2015 $change

Plastics&Rubber 983.3 1,477.1 493.8

Food&BeverageManufacturing 706.9 1,029.5 322.6Fishing,Hunting&Trapping 527.1 884.6 357.5

Other 616.1 770.7 154.6

WoodProducts,Pulp,andPaper 1,086.5 673.6 -412.9Oil&Gas 768.9 218.9 -550.0TransportationEquipmentMfg. 313.2 128.6 -184.6Agriculture 37.6 124.8 87.2Textiles,Clothing,&Leather 60.2 110.4 50.2Mining 116.8 70.1 -46.7Utlities 0.4 4.9 4.6Forestry&Logging 2.3 0.6 -1.6TOTAL 5,219.3 5,493.9 274.6

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characteristics the province shares with much of Canada. Of course, resources can underpin prosperity and be the basis for many internationally successful companies like Clearwater and Oxford Frozen Foods. But the key to mitigating the volatility of a resource economy and to sustaining growth is to add greater value to each unit of the underlying resource and to establish broadly diversified export markets. That in turn depends on the innovation in product, process, and market development that leads to durable global competitiveness.

There are many Nova Scotia companies of all sizes and sectors that have mastered the formula—Riverside Lobster International and Acadian Seaplants being two impressive examples among several (Box 4A, 4B). There are just not nearly enough of them. As a group, Nova Scotia exporters need to up their game substantially, as demonstrated by the dismal statistics cited above. The most significant recommendation in this chapter is therefore to create an “Export Accelerator” program to boost SME export performance. The economy can also benefit substantially from companies that invest and locate here from other jurisdictions. They may bring technology, innovative processes and business models, access to global markets and supply chains, and of course, jobs. The export focus of this chapter is therefore complemented with observations on the Province’s approach to the attraction of foreign direct investment (FDI) and certain related aspects of the role of the Nova Scotia Business Inc. (NSBI). The competitiveness that leads to export success depends critically on the adoption of the best technologies, practices, and ideas from around the world. So this chapter also recommends measures to facilitate the diffusion of innovation into the Nova Scotia economy. Finally, in view of the growing contribution of “cleantech” to a more sustainable economy, the chapter identifies opportunities to promote the emerging cleantech sector in Atlantic Canada both to capture the environmental benefits and to support development of new export capabilities.

An Export Accelerator for SMEs

A core objective of an innovation strategy for Nova Scotia, must be to improve substantially the export performance of small and medium-size enterprises, particularly in the traditional resource sectors, in manufacturing, and in tourism (understood as an export earner). A number of spectacular success stories in Nova Scotia demonstrate what is possible—e.g., Riverside Lobster International; Acadian Seaplants; Louisbourg Seafoods; Cabot Links and Cliffs; and the introduction of the Honey Crisp apple. If examples like these could be more broadly replicated, the impact on growth, on jobs, and on Nova Scotia’s economic reputation, would be transformative. The talent and the opportunity clearly exist. We have the success stories to prove it, but we need a lot more. Too many businesses believe that the potential reward for a significant investment in a leading-edge piece of equipment; or in product development; or in the time and expense to

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enter an unfamiliar market, is simply not worth the risk. Better to stick with the tried and true rather than put one’s business on the line, especially when the margin between success and failure looks slim and while the status quo is comfortable enough, at least for now.

Decades of experience trying to promote economic growth in Atlantic Canada demonstrate that this conservative attitude is very hard to shake . There is a reason for that. It is because the attitude is in fact rational given expectations regarding the tradeoff between risk and reward in a chronically lagging economy (Box 4C). Acknowleging this stubborn reality is one of the most important messages in this report. It cannot be wished away and no amount of verbal chiding by pundits and policy-makers will cause most businesses to change. That is why a government program to improve the export performance of Nova Scotia’s SMEs must be tightly focused on reducing the perceived risk of an ambitious export strategy while increasing awareness of the

4ARiversideLobsterInternational,Inc.Based in Meteghan River, Riverside Lobster International is a textbook case of rapid growth throughinnovationina traditionalindustry.RiversidesitsasideSt.Mary’sBay,anareaknownforitsqualitylivelobster.Severalyearsago,ownerDavidDeveaurecognizedthatarisingshareofthelobstercatchinwesternNovaScotiawascomprisedofsoftshelllobsters.ThesewereoflittleusetohisairfreightbusinesswhichsuppliedlivelobsterstotheAsianmarket.Inresponsetothischallenge,Deveaubrought together threelocal firms that in2014openedanewprocessingoperation—RiversideLobster International.When itbegan operations, Riverside had 47 employees. Today, it has more than 300 full-time employees, andprocesses60,000lbs.oflobsterdailyfromrawtoconsumptionreadyunderoneroofatitsMeteghanRiverfacility. It then ships directly to retailers, using its own transportation company, complemented bywarehouses in Nova Scotia, New Brunswick, andMassachusetts. Riverside sells to retailers throughoutCanada,andexportstotheUS(itslargestmarket),Europe,SouthKorea,andJapan.Thecompanypreviouslyworkedthroughwholesales,butRiversidefounditcouldbenimblerinrespondingtothedemandsofthemarketplacebyquicklytailoringitsoutputtothespecificproductlinesdemandedbysupermarkets.Riverside’s aggressive market expansion has been driven by technological, process, and productinnovations. The companyoperates an innovativehigh-pressureprocessingmachine, purchased fromaSpanish manufacturer, that reduces pasteurization time, thus increasing output while driving downoperatingcosts.Riversidehasalsoreplaceditswatercookingsystemwithacontinuoussteamcookerthatrunsata lowertemperatureand requires less fuel tooperate,an innovationthat is easierbothontheenvironmentandthebottomline.Determinedtoobtainasmuchvalueaspossiblefromalobster,Riversideisinvestigatinghowtoextractusefulcompoundsfromtheshells,suchascalciumadditivesforthedietoflayinghens.Andratherthanpaytosimplyhaveshellstakenawayforcompost,Riversideisseekingwaystoturnwhathastraditionallybeenawasteproductintorevenue.Forexample;thecompanyfundsresearchoncompoundextractionatDalhousie’sAgriculturalCampusinTruro,andisalsoinvolvedindevelopinganewflavouringderivedfromlobstershells.Thecompany’sgrowthiscurrentlyconstrainedbyapersistentshortageofworkerswhichillustratesoneconsequenceofNovaScotia’sdemographicchallenge.Immigration,andgreaterretentionofpopulationinruralandsmall towncommunitiesareneededtomitigatethisproblem.Nevertheless,Riversidehasjustspentmorethan$10milliononexpansion,installingnewequipmentanddoublingthesizeofitsplant.Asuccessbyanymeasure,RiversideLobsterInternationaldemonstratesimpressivelywhatcanbeachievedthroughentrepreneurshipandinnovationinatraditionalNovaScotiaindustry.

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reward and of how to achieve it. It is important initially to target businesses that have already shown some export success and/or have expressed a clear desire to improve their game. This will increase the chances of a program’s early success and thus create a demonstration effect that will inspire confidence and ambition in other companies. For this reason, a program to foster better export performance needs first to identify and support potentially strong businesses rather than try to prop up weak performers.

Responding to the foregoing diagnosis, it is proposed to create an “Export Accelerator” program, addressed to small and medium size companies, and described in broad outline below. First; some definitions and context. For purposes of this discussion, Nova Scotia’s “SME

4B AcadianSeaplantsWhenhediscussestheimpressivesizeofhiscompany’sworkforce,AcadianSeaplantsPresidentJean-PaulDeveauoftenpointsoutthatitsroughly350staffmembersinclude25researchscientists.DeveauisproudoftheR&Dconductedbythe35-year-oldDarmouth-basedcompany,whichexportsvalue-addedseaweed-basedproductstomorethan80countries.ThecompanyoperatesfivemanufacturingfacilitiesandanR&DcentreinAtlanticCanada.Deveau’sfatherLouisfirstbecamefascinatedbythepropertiesofseaweedasaboywhenhenoticedhisfatherspreadingaspeciescalledgoemonderocheonthefamilyvegetablegardeninBaieSte.Marie,NS.LouiswentontobecomethepresidentofMarineColloids,amultinationalbasedinRockland,ME, and eventuallyboughtout the company’sCanadianassets. Jean-Paul Deveau joined thecompanyin1985,andtogethertheygrewitintoamultinationalenterprise.Today,thecompanyhasmanydivisions, the biggest of which is its plant science division, which produces globally exported cropbiostimulants.Meanwhile,specialty-foodproductsareagrowingpartofthebusiness.

4C WhyTooManySMEsDon’tinnovate—a1990Perspective

Ina1990studyforACOAandtheProvince,ProfessorP.N.O’Farrell(abusinesseconomistatHeriot-WattUniversityinScotland)madethefollowingobservationsthat,unfortunately,remainrelevant26yearslater.

“DespitetheirlowerproductivitycomparedwiththematchedNewEnglandfirms,andtheirunderutilizationofmachinery,profitabilityof theNovaScotiafirms,withtheexceptionoffishprocessing,iscomparablewith that in New England. Given that most of the Canadian businesses sampled were profitable, it isprivately rational formanagementtomakerelatively lowerquality, expensiveproductswith littleornodesignorR&Dinput.TherewouldbelargesocialbenefitsiftheNovaScotialabourforcewastraineduptoAmericanstandardsbutaportionof thisbenefitwouldbetakenoutin theformofhigherwagesratherthanincreasedprofitability.[…]ThereisanapparentparadoxthatNovaScotiafirmsareprofitabledespitelowerproductivity,andalackofcompetitiveness.Thisisnotdesirablefromapolicyperspectivegiventhatinthispositionofmarketfailure,managementinNovaScotiaisbehavingrationallyinnotimplementingthose changes (increased training,more researchanddevelopment andproduct innovationandhigherproductivityandproductquality)whicharenecessaryforsustainedlongrungrowth.[…]Thediagnosisagainleads back to the need for policy makers to shift their emphasis away from subsidies for fixed assetinvestmenttowardshumancapitalassistance.”

SmallManufacturingCompetitivenessandPerformance:AnAnalysisofMatchedPairsinNovaScotiaandNewEngland.(March1990).

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exporters”28 fall into three broad categories29:

• Dynamic firms—those that are already growing and productive, investing in innovation and exporting widely, but have the potential to scale and become large companies.

• Opportunity firms—those with global growth potential but are less productive, investing insufficiently in innovation to compete globally, and have shown limited export ambition.

• New exporters—those with global growth potential but are not currently exporting, and therefore will need to understand how to become productive and innovative to compete in export markets.

Most SMEs are busy, with their heads down intently focused on day-to-day operations and keeping the bottom line in the black. Pressed for time, many do not know very precisely their current competitive position, or where they need to invest in order to succeed globally. Many are not aware of, or do not fully understand, the export services and programs available to them or where to look for help at different stages of the export readiness process. They need direct and customized support to raise awareness of possibilities, to overcome reluctance, and to pump up ambition. Export promotion is a resource-intensive process and existing provincial and federal program can be overwhelmed by demand from firms that are not really export-ready. Sometimes the export promotion agencies lack the on-the-ground networks needed to identify and recruit the highest- potential SMEs into the export services system. In addition, many government-run export development agencies do not have the private sector expertise to advise and mentor exporters looking to scale globally. The outline of a program designed to address the foregoing needs and opportunities follows: Proposed Features of the Program

A private sector firm (the “Accelerator”)—e.g., McKinsey, BCG, Deloitte Monitor and/or other top-tier consulting firms with a global reputation--would be engaged to develop and run an “Export Accelerator” program for SMEs. The objective is to help companies enhance their export ambition and competitiveness and thereby generate much greater export growth in Nova Scotia. a) Program participants (“Participants”) would be selected, upon application, based on

assessment of likelihood to benefit, including, for example, the commitment of the CEO and metrics demonstrating growth, investment and willingness to pursue broader export opportunities. The Program aims to build on potential strength.

b) The Participants would be mentored by entrepreneurs and senior executives (“Mentors”) that have significant export business experience. Often these highly qualified individuals want to help others, but their assistance needs to be well-structured to fit with their available

28Theterm“SMEexporters”asusedheredoesnotincludehighgrowthtechnologystartups,althoughthelatterarealsoexportfirmsthatarebornglobal.Here,wearefocusingonlyonSMEexportersthataremanufacturers,processorsandservicecompaniesinothersectors,whichcanincluderuralandresourcecompanies.29Deloitte(2013).“TheFutureofProductivity:AWake-UpCallforCanadianCompanies.”

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time. The Program would provide that structured opportunity for the Mentors and ensure actionable, real-world advice for the Participants.

c) A Participant, Accelerator and Mentor would collaborate to: (i) understand the competitive export landscape and emerging opportunities; (ii) determine what the company needs to do to become globally competitive; and (iii) develop a plan to succeed as an exporter including assessing the requirements for people and investment in ICT, equipment, and R&D.

d) The Accelerator would work with each Participant to support implementation of a customized business plan and bring in trade and market specialists to advise on the nuts-and-bolts realities of implementation.

e) Because building sustainable export capability takes time, the Program will need to be multi-year (e.g., 3 years’ participation per company) with the Participants belonging to an annual cohort meeting at intervals to review progress, update business strategy and operational plans, and share accumulating experience with others in the cohort. The 3rd year should include visits to the target markets to crystallize the export strategies that have been developed.

f) The Program would be sector agnostic apart from its export focus. There will be different program structures tailored for each type of SME exporter: the Dynamic Stream, the Opportunity Stream and the New Exporter Stream.

g) The number of Participants would initially be quite limited—e.g., 10 companies spread through the three categories. Participants that turn out not to be fully committed and making progress toward agreed milestones would be cut. Only a genuinely committed group would “graduate”.

h) The existing federal “Accelerated Growth Service”30 would help Participants access current federal programs.

i) Participants and graduates of the Export Accelerator program should be preferentially eligible for certain government programs, including a (proposed) new “Export Accelerator Fund” to provide customized funding through grants and/or loans to promote export success. This would be a further powerful incentive to apply to the Export Accelerator program and, if selected, to participate at a senior level.

Benefits of the SME Export Accelerator Program

The objective of the program, and the measure of its success, will be a significant and sustainable improvement in the export performance of Nova Scotia’s small and medium-size businesses. The program will contribute to this objective by: • Building awareness of market opportunities backed-up by practical, customized advice from

experienced exporters in order to instill confidence that ambitious export objectives can be achieved. (Business mentors who have had on-the-ground experience will be the key to

30TheAcceleratedGrowthServiceisacollaborationamongseveralfederaldepartmentsandagencies--Innovation,ScienceandEconomicDevelopmentCanada,GlobalAffairsCanada,BDC,EDC,IRAP,andtheregionaldevelopmentagencies(e.g.ACOA).

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credibility.) • Supporting planning and investment in the skills, equipment and intangible assets (e.g., data

bases, business processes, R&D) needed to achieve the export objectives of a participating company. This would be accomplished by guidance in assessing existing government programs and by financing provided by a proposed “Export Accelerator Fund”.

• Generating, via the demonstration effect, a new success dynamic among Nova Scotia SMEs as more and more graduates of the program achieve ambitious export goals. Because the program is selective, targeted on strength, and delivered by world-class experts, it will confer prestige and create a strong incentive to be selected and to graduate. Eventually a tipping point would be reached where skepticism evaporates and everyone wants “to get with the program”.

• Creating an environment in which participating companies share experience and insights that will (i) significantly amplify and complement the mentored aspect, and (ii) result in an on-going network of relationships among program graduates themselves as well as with mentors and thus continue to deliver benefit long after the formal program experience.

Considerations regarding implementation

The Export Accelerator program should be managed by NSBI in collaboration with, and partially funded by, ACOA. The actual delivery of the program’s content and expertise would be the responsibility of the Accelerator and Mentors. It is emphasized that the main distinguishing feature of this program will be the quality and reputation of the “faculty”. Accelerator and Mentors have to be genuinely world-class. Otherwise the Participants will not be attracted and sufficiently committed; the best Mentors will not devote their valuable time, and the ambitious objectives of the program will not be achieved. The selected SME participants would be expected to cover a portion of the cost of the mentored aspect of the program in view of the substantial individual benefit conferred. The first-year cost should be largely covered by government in order to encourage participation. Participating companies should bear an increasing share of the cost of quarterly attendance in years two and three as the value of the experience becomes well-established. The cost of the program, apart from funding for the proposed new Export Accelerator Fund, would be primarily (a) to retain the private sector consulting services (the “Accelerator” and the “Mentors”) (b) to host meetings and (c) to assign new government resources, if necessary, to provide oversight. The largest expense will be for consulting services since these must be of the highest quality and will be expected to prepare diligently for each meeting and provide on-going support via advice tailored to sectors and capabilities of Nova Scotia businesses and to specific market opportunities. This would not be a cookie-cutter exercise, although as experience is gained, the preparation required of the consultants would be reduced. The Accelerator might be paid through a modest “base fee” plus an outcome-based amount that would reward substantial increases in exports.

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4.1 Recommendation on the Export Accelerator Program In collaboration with ACOA, the Province should establish an Export Accelerator program. The objective is to significantly increase the export ambition and capabilities of selected SMEs through an intensive multi-year program of export strategy development and tutelage led by world-class experts. The program would have the following key features: a) Developed and run by an international consulting company of the caliber of, for example,

McKinsey, BCG, Deloitte Monitor b) Available, based on selection, to SMEs that demonstrate a willingness to improve export

performance and have the potential to do so c) Organized in annual cohorts of companies (e.g., 10 at a time) that would meet periodically

for three years under the guidance of the consultants and selected mentors who have extensive export experience and will be able to provide customized and experience-based advice related to specific sectors and potential markets

d) Supported by a new “Export Accelerator Fund” to provide customized financial support through grants/loans to promote export success

e) Graduates of the program to be given preferential consideration in accessing certain government programs that aim to build export readiness

f) Participating companies to bear a share of the cost with the government assistance front-loaded to encourage initial up-take. A portion of the Accelerator costs could be performance-related based on the growth in Participants’ exports.

NSBI would administer the program in close collaboration with, and shared funding from, ACOA. Although the Export Accelerator Program is described here in a Nova Scotia context, it would have similar benefits throughout Atlantic Canada and could be expanded as part of the Atlantic Growth Strategy, perhaps following a pilot in Nova Scotia.

Acquiring Innovation Via Foreign Direct Investment

Foreign direct investment (FDI) in support of economic development can occur through the establishment of a new corporate presence or the expansion of an existing enterprise as, for example, Michelin has done on several occasions (Box 4D). The benefit of FDI, beyond the jobs directly created, comes through the embodied technology and other forms of innovation, together with the expanded market access that the investing company can bring. The latter characteristics are the source of the durable competitiveness that Nova Scotia needs. The catch is that globally footloose companies—the typical targets of FDI attraction programs—are inevitably in a strong bargaining position to extract the best incentives from the competing host jurisdictions. Such companies often have only a shallow commitment to the investee location and are at risk to leave when incentives expire or the economy hits a rough patch.

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FDI is most reliable and most likely to generate long-term growth when it is motivated by particular characteristics of the host location—for example, in Nova Scotia’s case by a stable and reasonably well-educated workforce; an excellent network of post-secondary institutions to supply talent and R&D capabilities; direct air connections to the US northeast, central Canada, and Europe; and a cost-competitive and trustworthy business environment. Competing jurisdictions will of course claim many similar advantages. Often in the end, the competition comes down to a direct financial incentive, which in Nova Scotia’s case is principally the “payroll rebate”, an inducement managed by NSBI and which costs on average about $12 million a year (Box 4E).

Although operating subsidies may initially attract a corporate investment, they do not, in themselves, build durable attachment to Nova Scotia. Furthermore, because the province is already a relatively low-cost location, wage subsidies effectively double-down on an existing advantage and risk joining a “race to the bottom” with jurisdictions that have little else to offer. Nevertheless, the unfortunate reality is that a financial inducement may be needed to close an FDI deal that is important for Nova Scotia and that offers good prospects that the investing business will become well-rooted here. Among the financial incentives for FDI, the payroll rebate is well-designed and has a continuing role as part of a larger bundle of inducements. Having said that, the Province’s FDI attraction strategy needs to place greater emphasis on tools that will appeal specifically to innovative, ambitious companies, since these are the kind of investors Nova Scotia most needs to attract.

4D MichelinMichelin,theFrenchmultinational,establishedproductionfaciltiesinNovaScotiain1969,andhassincegrowntoemploynearly4,500inGranton,Bridgewater,andWaterville.AttractedbytheskillandworkethicofNovaScotians,Michlinhascontinuedtoexpanditspresenceintheprovince,investingnearly$2billionoverofthepastseveraldecades.Theincreasedproductionofcar,truck,andbustireshasledto“rubber”becomingtheprovince’slargestexportindustry,aheadoffisheriesandfoodandbeverages.Overtheyears,theprovincialgovernmenthassupportedMichelin’ssteadyexpansionwithacombinationofloansandgrants.Forexample,in1988,theProvinceapproveda$48.3millionloantosupportMichelin’s$500millionexpansion,with$25millionofthatloanforgivenin1997whenthecompanycommitted$150milliontoupgradeexistingfacilities.In2014,Michlelincreatedasmall-businessloanfundtomitigatetheeffectsofalargelayoffatitsGrantonplant.The fundprovideslow-interestloansofupto$300,000tosmallbusinessandstartupsinareasaffectedbythelayofftostimulateeconomicgrowthandcreatenewemploymentopportunities.Thealmosthalf-centurypartnershipbetweenMichelinandNovaScotiaisatextbook case of a mutually beneficial relationship between business and government, and also ademonstrationthat,withtherightpartner,world-classmanufacturingcanbeviableinsmall-townNovaScotia.

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One such potential incentive could be modeled on the existing “Productivity and Innovation Voucher”. Unlike a wage subsidy that flows back to the investor’s bottom line, the voucher is in effect a transfer from the government to a Nova Scotia entity (that performs the work for which the voucher is payment), but of benefit to the investor as a subsidy for innovation. The existing program, managed by Innovacorp, is intended to encourage SMEs to work collaboratively with universities and colleges. The recipient businesses use the vouchers (which have a maximum value of $25,000) to “purchase” services such as applied research, engineering work, prototyping, market advice, and field testing. In 2016 there were 167 SME applicants, 35% of which received vouchers worth just over $1 million.

The existing Productivity and Innovation Voucher—the “SME voucher”—should be retained while a second voucher—the “FDI voucher”—should be created to serve as an incentive to attract FDI prospects and could be redeemed, for example, to purchase training for specialized skills and/or acquisition of customized equipment and services from a variety of Nova Scotia providers. Since the FDI targets are typically large companies, the upper limit of this second type of voucher should be substantially greater than that of the SME voucher. The FDI voucher could be funded by reallocating a portion of the amounts that would otherwise be spent on the payroll rebate. This might begin with an allocation of 25% (about $3 million based on the current expenditure on the rebate), and then increased, or potentially cut back, depending on experience.

4E ThePayrollRebateandInvestmentAttractionNSBI’s“payrollrebates”rewardthecreationofgoodjobsinNovaScotia.Foreverydollaraqualifyingcompanyspendsonsalariesandbenefits,NSBIrebatesbetweenfiveandtenpercent.Theemployerdoesnotreceivetherebateuntil itcanprovethatadesignatednumberofnewpositionshavebeencreated.Thepayrollrebateistargetedtoknowledge-basedfirmsinhigh-growthsectors.Inthepast,NSBIhascourtedthefinanceandinsurance,ICT,anddefenceindustries;the2016-17strategyfocusesoncompaniesinICT,oceans,seafood,andagri-food.

ThecaseofIBM’sServicesDeliveryCentreinBedford,whichopenedin2013,providesagoodexampleof how a package of incentives andmutual commitments combined to attract a global tech-basedemployertoNovaScotia–inthiscase,thecombinationofamajorcontract,acommitmenttotraining,and finally a payroll rebate. The provincial government became the new Centre’s first large client,outsourcingitsSAPsystem,transferringadministrationofpayroll,humanresources,andprocurementdata. IBM has stated that having an anchor client in the region was essential for the Centre’sdevelopment, showing how important government procurement can be in attracting innovativebusinesses. The10-year contractwith theProvince isworth about$8.4millionper year and if IBMreaches its employment targetof 500 jobsby2020, theProvincehas agreed to rebateup to$12.2million through payroll rebate. Estimated provincial income tax revenue from IBM’s payroll, if theemploymenttargetisreached,wouldbe$18.7million.Aspartoftheagreement,IBMannouncedthatitwould spend$3millionona collaborative computing centre at Dalhousie to increase thepoolofemployment talent. It is also making efforts to collaborate with NSCC and other post-secondaryinstitutionsinNovaScotiatoenhanceSAPtraining.GraduateswillbepreparednotonlytoworkforthenewIBMGlobalDeliveryCentre,butalsotocontributetoHalifax’semergingICTcluster.

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Both voucher instruments should be managed by NSBI—the FDI voucher for obvious reasons; but there would also be virtue in moving the existing SME voucher from Innovacorp to NSBI since it is not primarily aimed at the startups that are Innovacorp’s main clientele. More important going forward, the mandate of NSBI should be broadened beyond FDI attraction and export promotion to include the support of innovation and productivity since these are necessary to boost the export competitiveness of SMEs. From this perspective, the voucher tool would complement the proposed Export Accelerator program as part of NSBI’s extended mandate. Since many of the other tools to encourage productivity and innovation are federal or provincial programs—such as LAE’s Workplace Innovation and Productivity Skills Incentive, ACOA’s Atlantic Innovation Fund, and NRC’s Industrial Research Assistance Program (IRAP)—NSBI should be evaluated on how often it refers businesses to successfully apply to such programs. To this end, consideration should be given to co-locating a number of IRAP Industrial Technology Advisors and ACOA Field Officers with NSBI to ensure complementary service delivery and to be better able to share field intelligence regarding joint client firms.

4.2 Recommendation on Incentives for Foreign Direct Investment

NSBI’s FDI attraction strategy should complement the payroll rebate with greater emphasis on incentives designed to attract more innovative companies. To that end:

a) The Province’s Productivity and Innovation Voucher program should be expanded to include a second component designed to serve primarily as an FDI incentive, redeemable for purchase from Nova Scotia providers of services that would be attractive to innovative companies. Management of both the existing voucher (which is targeted at SMEs) and the new voucher should be the responsibility of NSBI whose mandate should be broadened to include the support of innovation and productivity of its client companies.

b) At least 25% of the annual expenditure on payroll rebates (currently about $12 million) should be allocated to “FDI vouchers”, or other credits, to be redeemed for the purchase in Nova Scotia of goods and services that will enhance the innovation objectives of the investing company—for example: customized training and skills development; R&D collaborations with post-secondary institutions; acquisition of customized equipment and services; investing in, or procurement from, innovative startups; integrating Nova Scotia companies into global supply chains.

c) The portion of the FDI incentives offered through payroll rebate should be decreased over time depending on experience with alternative innovation-oriented incentives.

d) The payroll rebate should be made more strategic by complementing the standard rate with an enhanced rate for hiring highly qualified people or people from certain groups that are under-represented in the workforce.

Considerations relative to the Atlantic Growth Strategy Some of the most successful approaches around the world – Israel’s OCS, Finland’s Tekes, Enterprise Ireland, U.S. SBIR—provide generous grants to business (50% or more) for

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innovation, including both for R&D and for subsequent commercialization. The emphasis in Canada has been on tax-based assistance (the SR&ED credit) with a repayable feature for early-stage companies that may not have taxable income. Several observers have suggested that Canada’s R&D assistance should be re-balanced with a much greater proportion delivered via targeted grants31. In that spirit, through the Atlantic Growth Strategy, changes could be made to the AIF Program to support R&D and innovation projects between $500,000 and perhaps $5 million (an increase from $3 million currently). The program might also be applied with greater flexibility for business-driven innovation projects that are further toward the “development” end of the R&D continuum; and the AIF’s “repayability” experience should be reviewed to determine if a portion might be structured as a grant so as to increase uptake but with little or no ultimate impact on net cost to the government. . Stimulating the Diffusion of Innovation

Innovation flows from the point of origin into the economy via the process of diffusion. In fact, innovation is of little significance economically unless and until it spreads widely. A business or a province or a country is considered to be “innovative” if it is regularly among the early and successful adopters, and not just the inventors, of the new technologies and best practices that translate into superior competitiveness. Adaptation of innovations that originate elsewhere can stimulate further innovation through training, the redesign of business processes, and marketing to fully capture the benefits and create new value.

Perhaps the most successful innovation diffusion policy of all time was the set of measures developed in the U.S. in the late 19th century to bring agricultural science and technology to the family farm. This was accomplished through the establishment of a system of (“A&M”) universities specialized for the task, complemented by an extension service of trained “ag reps” who brought new knowledge and techniques to farmers, face-to-face. This comprehensive policy played a major role in the agricultural productivity revolution during the first half of the 20th century; and to this day, productivity growth in agriculture is consistently among the highest of any sector in the North American economy.

The lesson of this remarkable experience is that the most effective way to enhance productivity growth is to increase the rate of up-take of the global stock of innovation that is embodied in capital equipment, software, and in a growing array of intangible forms related to business processes, organizational models, marketing methods, and so forth. The diffusion of innovation

31ThelargestfederalinnovationsupportprogrambyfaristheSR&EDtaxcreditwhichrepresentsa“taxexpenditure”ofabout$3.5billionannually.CanadadeliversalargerfractionofitsinnovationsupportforbusinessthroughsuchindirectmeansthanalmostanyotheOECDcountry.The“JenkinsPanel”,inits2011reviewoffederalsupportforR&D(InnovationCanada:ACalltoAction),recommendedarebalancingtowardmoredirectfundingsupportmeasures.

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from firms and research institutions on the “global frontier” is the means by which lagging regions and sectors can close the gap with the leaders, or at least avoid falling farther behind.32

Businesses themselves are the main agents of innovation diffusion, a process that has been dramatically facilitated by the internet, Google, and a bewildering array of specialized sites. Indeed the problem today is less to find information on specific innovations than to cope with its oversupply. That is one of the reasons why face-to-face engagement remains essential for the effective diffusion of innovation. Here there continues to be a critically important role for public policies and programs. Examples include the IRAP program and sector-oriented Institutes of the National Research Council. The research and education activities of post-secondary institutions are of course among the most pervasive and effective agents of innovation diffusion, primarily through advanced graduates, trained at the leading edge of their fields. The recommendation, earlier in this chapter, regarding the Export Accelerator program is fundamentally aimed at increasing the up-take by SMEs of the leading-edge practices needed to become a globally-competitive exporter. In a similar vein, Nova Scotia’s FDI attraction strategy should target companies that are at, or near, the global frontier of innovation since their presence in the province will facilitate innovation diffusion to the adjacent business community.

The message to be taken from these examples is that a strategy to upgrade the global competitiveness of Nova Scotia’s businesses must be founded on policies and programs to promote the more rapid and effective diffusion of innovation into the province’s economy. What follows are two quite specific measures to this effect in addition to the recommendations earlier in this chapter.

Supporting Innovation Discovery Missions NSBI’s Export Growth program, which assists firms with costs related to in-market export activities, should be expanded, and include funds earmarked for “innovation discovery missions” to help firms identify first-hand the best ideas from around the world. Recall that the introduction of the Honeycrisp apple to Nova Scotia was the result of such a mission, though undertaken in the face of an industry crisis. It should not need to come to that. The best example of a strategy to support innovation discovery via missions abroad was undertaken by Japan in the post-war years through the 1980s. Japanese businesspeople and government officials combed the industrialized countries, and particularly the United States, absorbing technology and business practices to be applied and improved upon at home in order to accelerate the conversion of post-war Japan from an industrial backwater to a global power.

32ItwillsurprisemanythatthepercapitaGDPofNovaScotia(andtheotherAtlanticProvinces)hasgrownfaster,onaverage,thanthatofOntariooverthepastseveraldecades—e.g.,NSincreasedfromlessthan75%ofOntarioGDPpercapitain1994to80%in2014.ThishasnotbeennotduetotransferpaymentsfromOttawa—thosedonotshowupinGDP—butisalmostcertainlyduetodiffusionofinnovationintotheNovaScotiaeconomy,viatechnologyandbusinesspractices,fromOntario,theUSandelsewhereinCanadaandabroad.

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Promoting Digital Technology Adoption by SMEs

The federal budget in 2011 funded, on a pilot basis, the Digital Technology Adoption Pilot Program (DTAPP) designed to boost the productivity of SMEs by promoting their adoption of digital technologies. The DTAPP provided financial assistance to SMEs through non-repayable contributions (to support labour costs) for projects related to the adoption of digital technology. The program was delivered by IRAP between November, 2011 and March, 2014. It was then discontinued without public explanation, and despite an internal NRC evaluation in 2013 which recommended making the program permanent. The evaluation found that DTAPP was well suited to address many of the barriers Canadian SMEs face in adopting digital technologies, an area where Canada has long trailed far behind the U.S. It is time for another try. Encouraging the Diffusion of Cleantech “When the winds of change blow, some people build walls and others build windmills.”

—Chinese Proverb

“Cleantech” is a blanket term to denote a wide array of technologies that increase energy efficiency, reduce pollution, mitigate GHG emissions, and generally moderate the environmental impact of human activity. Cleantech is at the core of the “sustainability” paradigm and is therefore destined to be a global growth industry for many decades to come. Cleantech presents new opportunities to create innovative businesses (as described in Chapter 3) but can also contribute to the efficiency of established businesses—e.g., by cutting energy or material consumption. Sometimes a cleantech solution will be needed to meet increasingly stringent regulatory requirements, or a de facto requirement to be acceptable to consumers. For these reasons, the diffusion and adoption of cleantech by businesses and institutions in Atlantic Canada can boost competitiveness while at the same time contributing to public environmental objectives.

To encourage more rapid diffusion and adoption of cleantech, the federal government could create an Atlantic-wide “Cleantech Adoption Program”. This would likely be delivered through IRAP and ACOA –similar to the proposed digital technology adoption program – but could also involve provincial partnerships with, for example, Invest Nova Scotia, NSBI and/or Efficiency One (formerly Efficiency Nova Scotia) in this province. The program would provide financial support for expert consultation and sustainability audits, as well as a financial incentive for cleantech investment via a grant/loan mechanism. In addition to reducing costs for business, especially in resource-based industries, this could also help the province achieve long-term energy sustainability while improving health and environmental outcomes.The federal government appears to recognize the importance of technology diffusion to support GHG reduction, and has proposed a two-year $2 billion Low Carbon Economy Fund to achieve significant reductions. This fund could provide some support to an Atlantic Cleantech Adoption Program.

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4.3 Recommendation on Support for More Rapid Diffusion of Innovation • NSBI should expand its Export Growth Program to include “innovation discovery missions”

to help smaller firms travel to learn first-hand of the best relevant ideas from around the world.

• The federal government, through ACOA and IRAP, should introduce an Atlantic-wide “Digital Technology Adoption Program”, targeted at export-ready SMEs. (This would be a re-establishment, at a regional level, of a similar pilot program that was discontinued by the previous federal government in 2014 despite a favourable evaluation.)

• The federal government, in partnership with the Provinces, should introduce an Atlantic-wide “Cleantech Adoption Program” to encourage more rapid and extensive business investment in cleantech. Funding could come in part from the federal government’s Low Carbon Economy Fund.

Rural and Resource-based Innovation The population of most rural areas throughout North America has been in decline for decades as the structure of the economy has evolved from its former base in land and resources toward services and amenities that concentrate naturally in urban areas. This long-term movement of people has been amplified by the extraordinary productivity gains brought about by innovation in agriculture and all other resource-based and manufacturing industries. While these facts of history must be taken as given, the land and sea-based activities in Atlantic Canada are far too valuable, in both economic and socio-cultural terms, to be simply left to decline past the point of no return. But since the march of technological innovation cannot be turned back, it needs instead to be embraced to enable much greater value to be earned from the region’s resources, among which must be included great natural beauty and cultural charm. By bringing innovation and export market development fully to bear on Atlantic Canada’s resources, their value can

be vastly increased so as to generate the income growth needed to stabilize, and then reverse rural decline (Box 4F). There are many examples of businesses in rural Atlantic Canada that

4FAtlanticWineInstitute

Based at Acadia University’s Centre forRural Innovation, the Atlantic WineInstitute brings together businesses andacademic researchers for the commonpurpose of supporting Nova Scotia’sdynamic grape and wine industry.Establishedin2012,theInstitutefacilitatescollaboration between sectors in whichNovaScotiahasaremarkablecompetitiveadvantage. At the Wine Institute, theprovince’sPSEsworkside-by-sidewiththeten wineries clustered around Wolfvilleand others throughout the province. TheInstitute has been resourced by Acadia,NSCC, Dalhousie’s Agricultural Campus,SaintMary’sUniversity,HollandCollegeinPEI, Collège communautaire du Nouveau-Brunswick,theWineryAssociationofNovaScotia,andtheGrapeGrowersAssociationof Nova Scotia. The Institute alsocollaborates with Brock University’s CoolClimateOenologyandViticultureInstitute,which plays a similar role as a bridgebetween the academic and the privatesectors in the Niagara Peninsula’s winecluster.

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demonstrate what success can look like (Box 4G). They show that if we are held back, it is not for want of possibility.

The Atlantic Growth Strategy has articulated an approach to rural development that mirrors themes emphasized throughout this report. The Strategy, in respect of Atlantic Canada’s rural and small town economy, is focused on:

• supporting innovation and spurring value-added opportunities in established industries like the fishery, agriculture, minerals and forestry which remain foundations of Atlantic Canada’s economy;

• enhancing research and innovation in areas such as biosciences, aquaculture, ocean technology, renewable energy, fisheries, agriculture and forestry;

• investing in regionally significant infrastructure projects, including broadband connectivity; • developing a strategic and collaborative approach to tourism.

Tourism and Culture

The foregoing objectives align closely with recommendations earlier in this report, several of which call for support in the context of the Atlantic Growth Strategy. One important theme that has not been addressed explicitly in earlier chapters is the need to take a more strategic and collaborative approach to tourism, and more generally, to development of the cultural industries. This represents a

significantly under-exploited opportunity in Atlantic Canada. But it will require a major upgrade of the visitor experience with much greater emphasis on experiential elements including high-quality local cuisine; wilderness and coastal recreation; interactive forms of engagement with the region’s history; more events that showcase the region’s cultural richness When considering government investments in tourism and cultural development, it should be recognized that the same investments that will attract more visitor expenditure from outside the region will also make Atlantic Canada even more appealing to its own residents. This would, at the same time, greatly enhance the region’s attractiveness to what Richard Florida has called the “creative class”—those individuals who are at the cutting edge of innovation. The following recommendation closely mirrors a recommendation already made by the ONE Nova Scotia Coalition.

4G CabotLinksandCabotCliffs

While Cabot Links debuted as the 42nd best golf course in theworldinGolfDigest’srankingsin2014,itssistercourseone-uppedit, ranking as the 19th best in the world in 2016. In a storyreminiscent of “Field of Dreams”, Ben Cowan-Dewar turned anabandonedcoalminesiteinInvernessintoasignaturedestinationfor golf enthusiasts, celebrities and travelers looking for trulyworld-classexperiences,essentiallytransformingtheeconomyoftheentirewesternsideofCapeBreton.Cabotnowemploysover300staffandhas240caddiesroamingthefairways.Withupwardsof40,000roundsofgoldplayedinthe2016seasonandoccupancyatanall-timehigh,thedemandisthereforcontinuedgrowthinInverness County. With improvements to roads and otherinfrastructure,thecommunityfaçadeprograminfullbloom,andaninfluxofpeopleworking,living,andbuildinginthecommunity,theruralrevivalinInvernessisshowingnosignsofslowingdown.

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4.4 Recommendation on Enhancing Atlantic Canada’s Tourism and Cultural Advantage

In the context of the Atlantic Growth Strategy, the federal government should establish a “Creative Industries and Tourism Innovation Fund”. In partnership with the Provinces on a shared-cost basis, the Fund would support proposals (referenced below in a Nova Scotia context) to:

a) Establish new or enhanced festivals and events, with the goal of eventually having at least two signature events—e.g., of the calibre of Celtic Colours or the Halifax Jazz Festival—each month from May through October;

b) Create a select number of signature destinations—e.g., of the calibre of the world-ranked Cabot Links and Cabot Cliffs golf courses;

c) Bring the province’s wine, craft beer, and culinary experiences to a level that is unequivocally world-class. (In view of the increasing popularity of high-quality cuisine, particularly using the freshest local ingredients, Nova Scotia has an opportunity to establish itself as a global culinary destination based on an exceptional variety of seafood, boutique agriculture, and local game);

d) Improve air access with more convenient routes to larger urban centre in Atlantic Canada; e) Establish “Creativity Districts” in strategically located communities that have high potential

for tourism development and for attracting innovative businesses and exceptionally creative individuals--for example, Lunenburg (as a World Heritage Site), Wolfville (as a university town and centre of a developing wine industry).

Cleantech Strategy: Building the Foundations of a New Industry Canada stands at the threshold of building our clean growth economy.... Together, we will leverage technology and innovation to seize the opportunity for Canada to contribute global solutions and become a leader in the global clean growth economy.

—Vancouver Declaration on Clean Growth and Climate Change, March, 2016 In December 2015, 195 countries, meeting in Paris, adopted the first universal, legally binding global climate agreement, setting out a global action plan to put the world on track to avoid disastrous climate change by limiting global warming to well below 2°C. Canada’s commitments under the Paris Agreement, along with the March 3, 2016 Vancouver Declaration on Clean Growth and Climate Change, and the U.S.-Canada Joint Statement on Climate, Energy and Arctic Leadership reflect an unprecedented national and international commitment to action that will catalyze growth in the environmental industries, of which the “cleantech” sector will be at the leading edge of innovation. These and other commitments being made around the world imply that cleantech will eventually become a multi-trillion dollar global market. For example, global clean energy investments hit an all-time high of US $367 billion in 2015 – almost 50% higher than investments in fossil fuels.

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In the context of the Paris Agreement (in which Canada committed to cut greenhouse gas (GHG) emissions by 30% below its 2005 level no later than 2030), the federal government has stated that all Provinces must agree to impose “a price on carbon” by 2018 or face a federal requirement to that effect. Nova Scotia has in fact already reduced its GHG emissions by 30% below their 2005 level and has increased to 27% the contribution of renewables in its electricity mix, and is on track to hit 40% by 2020. The further imposition of a carbon price—via a new tax or cap-and-trade regime—would increase the province’s already high power prices, thus penalizing one province that has already met the 2030 reduction target. There are of course ways to mitigate the impact—e.g., by rebating all, or a portion of a carbon levy to consumers and businesses in a way that preserves the incentive to reduce one’s carbon footprint. But to achieve the full potential of a national GHG reduction strategy, tools like a carbon price should be complemented with incentives to develop and demonstrate technologies that will not only reduce GHGs but also lead to new industries. Incentives of the latter type are particularly relevant in Atlantic Canada in view of the economic challenges facing the region, but also the many cleantech initiatives underway in the region on which to build.

Although the scale and scope of change will disrupt industries in carbon-intensive sectors, it will also create unprecedented opportunities for new businesses and jobs in a low-carbon economy. The Atlantic Growth Strategy aims to develop a clean energy plan for Atlantic Canada by the end of 2016, and this plan should include a focus on cleantech opportunities. Atlantic Canada can be among the leaders provided there is a shared commitment among governments, business

4HVerschurenCentreforSustainabilityinEnergyandtheEnvironment

Cape Breton University’s Verschuren Centrefor Sustainability in Energy and theEnvironmentdeliverstechnologysolutionstobusinesses, governments and communitiesandcontributestotheeconomicgrowthbothofCapeBretonandNovaScotiabroadly.Itisa cleantech research and commercializationcentre, providing a range of supports--contract research and training services;planning and development services;technologydevelopmentandevaluation;andbusiness incubation. It is a key part of CBUwhich has the distinction of being NorthAmerica’s first energy self-sufficientuniversity.Since2012,theVerschurenCentrehas incubated 8 SMEs, helped over 80organizations in7provincesand6countries,and generated an impressive $15 million incontractrevenues.

4I CarbonCure CarbonCure has found clients across NorthAmerica for its manufacturing process, whichinjects waste carbon into concrete, therebyeliminating the CO2 emissions created in themanufactureofconcreteproducts.(Concrete,theworld’s most common construction material, isresponsibleformorethan5%oftotalgreenhousegasemissionsbecausetraditionalprocessescureconcrete blocks by heating them.) CarbonCurestarted with concrete blocks and introduced aready-mix product in December 2015. Thecompany’s first client was Shaw Brick, thevenerable building material company based inLantz,N.S.,whichannouncedinJuly2016itwasextending the CarbonCure technology to all itsproductlines.Thecleantechstartuphasreachedclients throughout the U.S. and Canada whileraisinglessthan$10millioninfunding,provingacleantechcompanycansucceedwithmanageablefundingneeds.

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and post-secondary institutions to pursue opportunities in those niche areas where the region, and individual provinces, have comparative advantages and/or established strengths, such as smart grid, energy storage, bioenergy, and tidal power. But converting potential advantages into realized success will not happen automatically. It will require the collaborative commitment of governments and business united with the region’s post-secondary research and education capabilities. The federal government, in Budget 2016, committed to invest more than $1 billion over four years, starting in 2017-18, to support clean technology, including in the forestry, fisheries, mining, energy and agriculture sectors. A portion of this commitment, via the Atlantic Growth Strategy, would provide a fiscal foundation for an Atlantic Cleantech initiative as outlined below. Tidal Energy

Nova Scotia and New Brunswick share a resource of tremendous potential: the Bay of Fundy whose daily tides equal about four times the combined flow of all the world’s rivers flows. The potential tidal energy from the Bay of Fundy is on the order of 60,000 megawatts (MW), of which up to 2,500 MW—enough to power all of the homes in the Maritimes—may be extracted without significant impact to the marine environment. (For more than 30 years power from tides has been extracted through the Annapolis Tidal Generating Station.) Over the longer-term the potential of tidal energy is enormous, but to be realized, numerous challenges need to be overcome. The tidal industry will require significant amounts of R&D for tidal power to become economically viable and to minimize marine environmental impact. Tidal is nevertheless one of the few sources of cleantech where Atlantic Canada has a genuine global advantage and the opportunity is far too significant to be ignored. This opportunity is supported by government policy in Nova Scotia which is aiming for 15 to 20 MW of demonstration projects before expanding to 300 MW. The Fundy Ocean Research Center for Energy (FORCE), a not-for-profit corporation in Nova Scotia—supported by the federal government, the Province, Encana Corporation, and participating developers—operates tidal turbine demonstration facilities and enables public and private research into tidal energy extraction and its effects. Four projects, including one with Emera in partnership with French giant DCNS, are currently in various stages of deployment.

Smart grid and efficient energy storage

One major enabling technology for which Atlantic Canada already has several initiatives underway is the “smart grid”, the next stage of evolution of the electricity transmission system. Smart grids employ sensors and automation technology so that electric utilities can adjust and control individual devices or millions of devices from a central location, reducing waste and maximizing efficiency of energy resources.

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The single most significant barrier to the widespread adoption of clean energy solutions, such as tidal, wind and solar, is that they are intermittent, and in the case of wind and solar are to some extent unpredictable. It is well recognized that low-cost energy storage would remove this limitation, enabling virtually all of society’s energy to be supplied by renewable sources. There are many potential storage technologies—e.g., chemical storage, heat storage, pumped-storage hydro dams, compressed air, and rechargeable batteries. The latter medium may turn out to be the most significant as society turns increasingly to battery-powered vehicles. When not in use—which typically is most of the time—electric vehicles constitute a potentially vast interconnected storage system that could be managed by smart grid technology. Without cost-effective energy storage, the potential impact of wind, solar and tidal is limited. Nova Scotia has significant research capabilities that should be fully brought to bear on the energy storage challenge. The payoff from development of cost-efficient methods, both in terms of renewables enablement and of export opportunity, would be monumental.

Bioenergy Bioenergy, and in particular biofuels, is a significant opportunity in rural parts of Atlantic Canada. There are companies working on biofuels using a wide range of locally-available feedstocks including wood processing wastes, agricultural wastes, marine sources (e.g., seaweed) and purpose-cultivated energy crops (Box 4J). Many of these initiatives are at the pilot and demonstration phase and will require significant R&D to develop a viable bioenergy industry that complements, and does not compete with, existing industries such as production of

4J TwoInnovativeBio-energyStartups

CellufuelCellufuelconvertslow-valueforestryby-products(woodchips,sawdust,andsoon)intoliquiddieselfortherefinerymarket.Itsproductis chemically indistinguishable from petroleum-based fuel andis compatible with existing fuel infrastructure and engines.Woodis80%efficientwhenconvertedtodiesel,butonly20%efficientwhenburnedconventionally.Ledbyateamofseasonedforestryandprivateequityexecutives,CellufuelispreparingalargedemonstratorfacilityattheformerBowaterMerseypaperplantnearLiverpool.Thecompanyhasbenefittedfrompublicandprivatesectorsupport:in2014,itreceiveda$270,000investmentfromInnovacorp,a$500,000loanfromACOA,anda$1.5millionloanfromtheProvinceofNovaScotia.ItwasalsoawinnerofInnovacorp’si3competition.In2016,Cellufuelreceived$2.7millionfromthefederalgovernment’sSustainableDevelopmentTechnologyCanadafund.MajorprivatesectorinvestorsincludeQuebec-basedrenewableenergyleaderBoralex,andtheOntario-basedTatroGroup.

SustaneThewinnerof Innovacorp’s2016 i3 TechnologyStartupCompetitionwasnota techcompanyfounded by young programmers, but a Chester-based company that aims to reduce waste going intolandfills.SustaneTechnologies Inc., foundedby industryveteranPeterVinall,hasdeveloped technologythat allows solidwaste destined for landfills to bemade into clean and valuable products such as fuelpellets. The system lowers contamination by plastics to a negligible 0.1 percent. Havingwon $225,000throughtheI-3competition,SustanenowplanstobuilditsfirstfacilityneartheChesterlandfillatKaizerMeadow,whichwilldivertmorethan90percentofmaterialawayfromthelandfill.Vinall,whohasworkedaroundtheworldinthebio-energyandpulpandpaperindustries,saysit isthefirsttechnologythatcantakerawgarbagedestinedforlandfillandseparateitintocleanproducts.

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affordable food. Properly encouraged and managed, these opportunities can help grow a sustainable industry that can bring new prosperity and export opportunities to rural economies. 4.5 Recommendation on an Atlantic Cleantech Strategy

In the context of the Atlantic Growth Strategy, the federal and provincial governments should commit to a multi-year cleantech strategy that would support implementation in Atlantic Canada of the new federal climate change framework.The strategy, supported by dedicated funding from the federal government, would aim todevelop cleantech research strengths into export opportunities in areas that have strong commercial promise, including smart grid, energy storage, tidal power, and bioenergy. As a first step, the post-secondary institutions should be asked to strike a group with representatives of industry (including the electric utilities in the four provinces) and relevant government agencies, to develop a 5-year plan for submission via ACOA to the federal government.

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Chapter 5 DEVELOPING A WORLD-CLASS OCEANS INNOVATION CLUSTER “We know more about the surface of the Moon and about Mars than we do about [the deep sea floor], despite the fact that we have yet to extract a gram of food, a breath of oxygen or a drop of water from those bodies.” —Paul Snelgrove, Oceanographer, Memorial University . Nova Scotia’s history and development are inextricably linked to the ocean; an indefinitely sustainable comparative advantage based on Nova Scotia’s location and a coastline as long as the distance across Canada. Ocean-related activities—the fishery, defence and security, ship-building, marine transportation, offshore energy, tourism, and a thriving group of ocean technology companies—comprise a significant portion of the province’s economy, accounting directly for some 35,000 jobs33. Nova Scotia is home to a strong cluster of oceans industries and to world-class oceans research capabilities (Figure 5.1). The province is therefore becoming a globally-recognized hub of oceans expertise with the potential to be a significant contributor to a number of international value chains related to leading-edge oceans technology. 5.1 OceansIndustry

33 Itisestimatedthatwhenspin-offactivityisincluded,theoceaneconomyinNovaScotiacontributesabout12percentofGDPandmorethan63,000jobs--EconomicValueoftheOceanSectorinNovaScotia:2007-2011,preparedforNovaScotiaDepartmentofEconomicandRuralDevelopmentandTourismbyGardnerPinfold,March2014(The2014NSOceanStudy)

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This chapter begins with a discussion of the concept and economic significance of an innovation “cluster” and identifies key elements of the oceans cluster centred in Halifax, but part of an Atlantic region super-cluster along the east coast from St. John’s to south of Boston. Three specific recommendations are proposed to help establish Nova Scotia’s oceans innovation cluster among the top centres in the world: (i) seize the opportunity created by the multi-billion dollar naval ships contract; (ii) maximize the contribution to the cluster of the newly-created Centre for Ocean Ventures and Entrepreneurship (COVE); and (iii) establish environmental sustainability as a research and commercial theme of the oceans innovation cluster. The Cluster Concept

The federal government’s innovation agenda includes a new focus on the support of “clusters” of innovative activity that are judged to have the best potential for strong growth in the future—e.g., the Kitchener-Waterloo/Toronto corridor is often cited as an example of a high-potential cluster in the ICT sector. So what is a cluster, and what is its special economic significance? A cluster is a geographically concentrated collection of related activities—think, for example, of the film industry cluster that is Hollywood, or of Silicon Valley as the contemporary cradle of information technology, or Canada’s auto manufacturing cluster in southern Ontario. The economic significance of a cluster derives from the many benefits of physical proximity. These include, for example, ready access to specialized services and infrastructure; a concentration of talent; a wealth of opportunities for informal contact that greatly facilitates the identification and evaluation of business ideas and of potential hires; the casual exchange of information and experience among networks of “insiders”. These characteristics of physical closeness mean that the whole is greater than the sum of the parts and that a cluster, once germinated, is self-reinforcing. The greater the concentration, the greater the benefit up to a point where congestion costs (e.g., due to traffic and real estate prices) finally dominate, as appears to be happening now in Silicon Valley. It is impossible to draw sharp boundaries around a cluster. The benefits of proximity fall off with distance from the centre but do not disappear abruptly. While the Internet means that some of the interpersonal communications benefits of a cluster can now be extended globally, the fact is that easy face-to-face contact still matters hugely because so many economic activities take place in physical space. To take just one example, consider the search for talent. Within a cluster, people can be identified and evaluated based on informal word of mouth and casual contact; and if selected, usually do not have to sell their house and uproot their family. So inside a cluster, the market for talent is incredibly efficient, and the denser the cluster, the more efficient. Clusters are therefore powerful generators of innovation and growth, as the history of cities demonstrates. The cluster phenomenon, at various scales, is ubiquitous. So there is a tendency to define any concentration of a particular activity as at least a potential cluster to be supported with public

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policy measures. This understandable political temptation to spread cluster support too widely and thinly must be resisted. Experience from around the world shows that investment, both public and private, needs to be focused where the cluster dynamic is already well-established since that is a sure signal that the conditions favouring strong growth already exist.

It is likely that only a very limited number of clusters in Canada will receive the bulk of federal support earmarked for innovation clusters, which is anticipated to be about $800 million over the next four years. There is a strong case to be made that the oceans technology cluster, with poles in Halifax and St. John’s, should be included in that limited number. In fact the Atlantic Canada oceans innovation cluster is part of an east coast “super cluster” that includes an agglomeration of world-class research facilities and ocean tech companies along the New England coast to south of Boston. Proximity to that rich source of capabilities is a significant advantage for the Atlantic Canadian cluster, but to derive the full benefit, Canada’s contribution to the super cluster needs to be upgraded to more nearly match the depth and capability of the US component. Fortunately, Halifax already has an exceptionally broad and deep base of ocean

5AHalifax-basedElementsofNorthAmerica’sEastCoastOceansSuper-Cluster

Halifaxisatthecoreofa“cluster”ofoceans-relatedeconomicactivitiesthatbenefitfromclosephysicalproximity.Thisconcentrationfacilitatesaccesstoservices,commoninfrastructure,andspecializedskillsandattractstalentandinvestmentinaself-reinforcinggrowthprocess.Amongkeyelementsoftheoceansclusterarethefollowing.

• Leadingoceansresearchcapabilities:DalhousieUniversityandfivefederallabsinoceansrelatedscienceandobservationprovideoneofNorthAmerica’shighestconcentrationsofoceansresearchcapacity.

• Thrivingoceantechnologysector:CentredinHalifaxandfocusedonsensors,bigdata,roboticsandlifesciences--comprisesabout60knowledge-intensivecompanies,mostlysmalltomedium-sizedbutalsoincludingmultinationals,thatdevelopsophisticatedproductsforglobalmarkets.

• Marinetransporthub:ThePortofHalifaxranksthirdinCanadaincontainertonnageandiswell-positionedbothnationallyandglobally.

• Offshoreenergyresearchandstaging:Theprovincialgovernment’sOffshoreGrowthStrategyandPlayFairwayAnalysis(PFA)providedtheoilandgasindustrywithgeoscienceresearchandanalysis,resultinginShellandBPcommittingtospendapproximately$1billioneachonexplorationby2020despitecurrentlydepressedhydrocarbonprices.

• Defenceandsecurityplatform:Halifaxistheheadquarters,mainbase,andR&DcentreoftheCanadiannavyontheeastcoast.

• Canada’sleaderinnavalshipbuilding:IrvingShipbuilding’s$25-billionnavaldefencecontractwillbring30yearsofactivitytotheHalifaxShipyard,plusanticipatedmaintenanceandup-gradingactivitythatwouldcarryonindefinitely--providingoneofNovaScotia’smostsignificanteconomicopportunitieswithanemphasisontechnologyandadvancedmanufacturing.

Theseactivitycentresaresupportedbyspecializedprofessionalservicesinfinance,law,engineering,logisticsandconsulting;essentialelementsthatbindthenodesoftheclusterintoanecosystem.AlthoughtheoceansclusteriscentredinHalifax,itconnectswithandenrichesadensewebofoceansactivitiesthroughouttheprovinceandAtlanticCanada,andcomplementsasecondclusterinSt.John’swhichisfocusedoncoldoceanscienceandengineeringandoffshorehydrocarbonproduction.ItisalsoakeypartoftheOceanSuperClusterinAtlanticCanadaandNewEngland.

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research and industry and is positioned--thanks to the naval ships contract, and the recent investments in COVE and the Ocean Frontier Institute--to become a genuinely world-class centre of ocean innovation, but only if the recent momentum is sustained (Box 5A).

Leveraging the Growth of Nova Scotia’s Oceans Innovation Cluster

Previous chapters of this report have recommended measures in the broad context of an innovation strategy that will also be effective in fostering the development of the oceans cluster—for example: programs to build human resources from grade school forward; investment in research excellence in all post-secondary institutions; measures that will create fertile conditions for the growth of innovative startups; programs to enhance the ambition and capabilities of exporters. All of these will promote an innovative oceans cluster. But more focus is required to ensure that Nova Scotia’s unique oceans opportunity receives the policy attention and investment that is needed to warrant inclusion among the limited number of major

5B DalhousieUniversity:ALeaderinOceanResearch

DalhousieisamongCanada’sstrongestoceanresearchuniversitiesbasedonacademicpublications,citationsand federal research funding. Its ocean research strength extends across the faculties of science, law,agriculture,engineering,computerscienceandbusinesswithmorethan100researchersfocusedonoceansrelatedtopics.Theuniversityhasallocated17CanadaResearchChairsinoceans-relatedresearch,includingaprestigiousCanadaExcellenceResearchChair.Dalhousieisamemberofseveralinternationaloceanresearchcollaborations; for example: the Helmholtz-Canada Cooperation Agreementwith Germany; the AustralianCanadianOceansResearchNetwork;theGlobalPartnershipforOceans;andtheIUCNWorldCommissiononEnvironmentalLaw,SpecialistGrouponOceans,CoastsandCoralReefs.DalhousieishometoseveraloftheleadingoceanresearchinitiativesinCanadaandindeedglobally:

• OceanTrackingNetwork(OTN)isa16-countryconsortiumofmarinebiologistsandoceanographersthatarebuildingaglobalunderwaterarrayofacousticreceiverstotracktheglobalmigrationofhundredsofthousandsofmarineanimals.

• Marine Environmental Observation, Prediction and Response (MEOPAR) is a pan-Canadian network ofacademicresearchersexploringchangesinthemarineenvironmentanddevelopingbetterwaystopredictandrespondtochangesintheocean,atalltimescalesfromimminenttolong-term.

• CanadaExcellenceResearchChair(CERC)inoceanscienceandtechnologyisoneoffewerthan20CERCsacrossCanadainallfieldsofscience.ItisheldbyDr.DougWallace,oneoftheworld’sleadingexpertsontheexchangeofcarbonbetweentheoceanandtheatmosphere;akeymechanismintheregulationofgreenhousegases.

• InstituteforBigDataAnalyticscreatesknowledgeandexpertiseinthefieldofbyfacilitatingfundamental,interdisciplinaryandcollaborativeresearch,advancedapplications,advancedtrainingandpartnershipswithindustrywhichinNovaScotiahasastrengthindataanalyticsappliedtotheocean.

• Ocean Frontier Institute (OFI), a new $200 million+ investment in ocean science excellence, is acollaborativeinitiativeinwhichDalhousiehasteamedwithMemorialUniversityandtheUPEIandseveralpre-eminent international partners including the Woods Hole Oceanographic Institution, ColumbiaUniversity,andGEOMARinGermany.Dalhousiewasrecentlyawarded$94milliontosupportOFIinthefederal Canada First Research Excellence Fund (CFREF) competition. This is in addition to $25millioncontribution fromJohnRisley,thelargestprivatedonationtooceansresearchinCanadianhistory.TheOFIispositionedtobecomeagloballyrecognized“thinktankoftheoceans”exploringlargescalechangesintheoceanandhowthesewillimpacthumanactivity.

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innovation clusters in Canada. Two specific opportunities stand out: (i) maximizing the benefit of the naval ships contract; and (ii) ensuring that the COVE facility anchors the development of a world-class ocean innovation ecosystem.

The Naval Ships Contract and the ITB/VP Policy

Irving Shipbuilding’s contract to replace much of Canada’s naval fleet—and specifically the “Canadian Surface Combatants”—is presently estimated to have a value of at least $25 billion to be spread over some 30 years34. The government hopes that this massive procurement can not only provide the Canadian Forces with first-class naval capability but can also be designed to increase the global competitiveness of Canadian industry. The key policy innovation in this regard is the combination of an Industrial and Technological Benefits (ITB) requirement with a novel Value Proposition (VP). The ITB is essentially a re-christening of the long-standing Industrial and Regional Benefits (IRB) “offsets” policy that requires the winners of defence contracts to undertake business activities in Canada equal to the value of the contract (i.e. an estimated $25 billion in the case of the naval procurement). These activities do not have to be directly related to the contract in question—though typically a substantial portion would be—and at least 15% of the activity must be with SMEs. The Value Proposition is an entirely new and significant feature of Canadian defence contracting. For all contracts above a certain size (usually over $100 million), competing bidders must include a Value Proposition in their bid. The VP, which will typically count for 10% to 15% of the points awarded when the government assesses the relative merits of bids, must describe the bidder’s commitment to undertake certain specified types of activity in Canada—specifically: supplier development; advanced manufacturing; building Canadian export capacity; and R&D (including collaboratively with post-secondary institutions). The objective is to strengthen the competitiveness of Canadian industry, including the bidder’s own Canadian-based activities. Since the VP will count in bid scoring, the bidding companies will have a strong incentive to come up with credible and ambitious commitments to employ their ITB spending in ways that will build Canadian competitiveness in technology-intensive activities35. The VP and ITB obligations can be fulfilled anywhere in Canada. There is no preference for Atlantic Canada or for Nova Scotia. Still, the fact that (i) the contracts are in the naval domain; (ii) Nova Scotia industry and research institutions have many capabilities relevant to companies

34Mostobserversbelievethatthecostofthenumberofvesselspresentlyanticipatedwouldsubstantiallyexceed$25billion,implyingthatmorefundswouldeventuallyhavetobebudgetedorthenumberofshipsand/ortheircapabilitieswouldneedtobereduced.35ThenewITB/VPpolicypromisestobeparticularlybeneficialforAtlanticCanadawhich,accordingtothelatestestimatefromStatsCan,isthelocationof17%ofCanada’sdefenceindustryactivity,aproportionmuchgreaterthantheAtlanticregion’sshareofnationalpopulationorGDP.Ofcourse,theregion’sdefencesupplierswillhavetocompeteonthebasisofproductcostandqualitytoattractITBspending.

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that are likely to bid on such contracts; and (iii) the final assembly of the ships will take place in Halifax; means that there is an exceptional opportunity for this contract to provide “fuel” to propel Nova Scotia’s ocean innovation cluster. In addition, while the VP commitments for the naval ships can be in any sector, priority will be given to clean technology, cyber security, and the marine sector. It is a once-in-a-generation opportunity, but it will not be fully achieved without concerted effort and sustained focus by business, research institutions and the Province. So far, the focused effort that is needed has not materialized. 5.1 Recommendation on Mobilizing Nova Scotia’s Oceans Innovation Cluster

Create a small senior group in the Department of Business dedicated full-time to promote and co-ordinate the Province’s support of the “Oceans Innovation Cluster” in Nova Scotia. The role of this oceans cluster “champion” would be to:

a) Spearhead a coordinated effort with the other Atlantic Provinces to secure for Atlantic Canada a share of the $800 million of federal support earmarked for “innovation clusters”;

b) Specifically in the Nova Scotia context, work with businesses and the federal government to maximize the benefit of the naval ships contract flowing from the federal Industrial and Technological Benefits/Value Proposition (ITB/VP) policy;

c) Provide Provincial assistance as required to maximize federal support to the Oceans Innovation Cluster through such programs as the Canadian Accelerator and Incubator Program (CAIP), Centres of Excellence for Commercialization and Research (CECR), Business-Led Networks of Centres of Excellence (BL-NCE), Atlantic Innovation Fund (AIF), Mitacs. Collaborate with the proposed Research Nova Scotia organization regarding the specific research aspects of these programs;

d) Foster closer relationships among federal oceans-related research facilities (e.g., DFO, NRC, DRDC), oceans-related businesses, and post-secondary institutions; and

e) Serve as the intra-government champion of the Oceans Innovation Cluster and ensure co-ordination of various supporting initiatives across the Government of Nova Scotia. A first priority in this regard should be to ensure that COVE is properly launched.

To assist in fulfillment of its role, the oceans cluster champion should create an external advisory group with representation from the key post-secondary institutions, industry, the Halifax Regional Municipality, and the other Atlantic Provinces.

Anchoring the Oceans Innovation Ecosystem—The Centre for Ocean Ventures & Entrepreneurship (COVE)

The second key opportunity to take Nova Scotia’s ocean innovation cluster to the next level has arisen as a result of the creation of COVE. This facility will occupy the former Coast Guard station on the Dartmouth side of Halifax harbour. When renovated by mid-2018, it will anchor an innovation ecosystem bringing together oceans researchers, incubator space for startups, shared equipment and facilities for SMEs, office space for major companies, and deep water

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access for research projects and vessels. Located right in the centre of a major metro area, COVE is precisely the kind of initiative that can energize an oceans innovation cluster and drive ocean technology commercialization, startups and scale-ups (Box 5C). Now that nearly $20 million has been committed by the Province and the federal government for renovation, the next step is to establish a management and governance structure and to secure operating funds for at least a startup period of, say, five years. It is important to distinguish between COVE as a physical facility with costs and revenues that relate directly to service provision; and COVE as an organizational entity that not only manages the physical aspect but also gives the initiative identity and strategic intent. Ultimately, the physical entity may be close to self-supporting from tenant rental and memberships, and eventually from project work. The immediate challenge is to secure funding for COVE as manager and strategic nerve centre—the enabler of the whole enterprise as well as the catalyst and connective tissue of the ocean innovation cluster. These functions are all “public goods” which are currently being insufficiently supplied. They also have substantial costs which are often unacknowledged; but are necessary for the growth of the cluster. For this purpose, funding will be required from one or more industry partners, but also from government. Industry support might come through an ITB/VP commitment related to the naval ships contract on the grounds that COVE will be a key agent of marine sector innovation, including R&D, supplier development, and export readiness—all activities that earn points in the evaluation of Value Propositions. Federal support might be obtained, for example, if COVE were able to qualify, through a competition, as a Centre of Excellence for Commercialization and Research (CECR). On the provincial side, Innovacorp and NSBI will have roles to play, respectively, in startup incubation and investment attraction. But who has a mandate to support COVE, the organizational entity, without which the performance of the whole enterprise will degrade or collapse? The Province needs to ensure that such does not become the fate of COVE. This will require, on an urgent basis, proactive engagement to secure industry and federal support and a willingness to be a backstop and kick-start the cluster, while continuing to play a funding role thereafter. In some respects, COVE will play a role in the oceans innovation cluster analogous to the function of the Consortium for Research and Innovation in Aerospace in Quebec (CRIAQ) in the Montreal aerospace cluster, though the parallel cannot be exact given the very different contexts of the two industries. COVE would promote collaboration between industry and research specialists to identify and implement precompetitive projects that meet industry requirements in ocean technology while leveraging respective resources to support projects and activities on a larger scale. For example, this could provide funding for research consortia related to ocean technology with a focus on sensors, robotics and autonomous underwater vehicles (AUVs), artificial intelligence, and big data to spur business innovation through collaborative ocean

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technology R&D, with applications for the economy, science, surveillance, and environmental response. A particularly important CRIAQ program supports the acceleration of innovation by SMEs. Such a collaborative industry-led applied research consortium in ocean technology could leverage federal funding programs such as CECR and Business-led NCE.

5C CentreforOceanVentures&Entrepreneurship(COVE)

COVEisanoceantechnologyincubatorandacceleratorthatwillbeananchorfacilityforNovaScotia’soceansinnovationcluster.Theultimateobjectiveistoincreasetherateofformationandsuccessofnewventures,toenhancethegrowthofexistingoceancompanies,toincreaseuniversityresearchcommercialization,andtoattractforeigndirectinvestmentintheoceansector.COVEwillanchoranAtlanticCanadiancommunityofentrepreneurs,startups,SMEs,largecompanies,researchinstitutions,andenablingorganizationsintheoceansinnovationecosystem.COVEwilloccupyan8-acresitewithsubstantiallyrenovatedspaceintheformerCoastGuardfacilityontheDartmouthsideofHalifaxharbour.Therenovation,whichisslatedforcompletioninthefirsthalfof2018,willincludeapproximately50,000sq.ft.ofcoveredspacewithinexistingbuildingsandissupportedbyagrantof$19.7million,ofwhich$12millionisbeingprovidedbytheProvinceand$7.7millionbyCanada.ThreeProvincialCrowncorporationswillhaveon-goingroles:WaterfrontDevelopmentCorporationaslandlord;Innovacorpforincubatorfacilities,andNSBIformarketingandinvestmentattraction.Anoverarchingmanagementandgovernancestructureisstilltobedetermined.TheexistingInstituteforOceanResearchEnterprise(IORE)hasplayedaleadingroleintheconceptualdevelopmentofCOVEandmightbere-mandatedtoprovidethemanagementfunction.Operationalfundingforthefacilitywillcomefromtenantrentals,membershipfees,projectincome,oneormorelargeindustrypartners(perhapstofulfillITBandValuePropositioncommitments),andfromavarietyofgovernmentsourcesincludingpotentiallyasaCECR.COVEwilloperateasamixedusemarinefacility.OceanresearchersatDalhousieandotheracademicinstitutionswillbenefitfromexposuretoworkingoceanbusinesses.StartupsandSMEswillgainearlyaccesstoleadingoceanresearchandtocontactswithlargeoceanindustryactorstohelpwithdevelopingscalableproductideasandmarketaccess.Largeoceanindustrytenantswillgainaccesstoagileinnovatorsbothinacademiaandinsmallbusinesses.FortraditionaloceanindustryplayersCOVEwillcreatetheopportunitytofundamentallytransformtheirbusinessesthroughuseofinnovativetechnology.Largeroceansystemscompanies(e.g.,IBM,LockheedMartin,Shell)willbemotivatedtoparticipatebyvirtueoftheirobligationstovariouslevelsofgovernmentincludingITBsforaerospaceanddefencecompaniesandR&Dinvestmentcommitmentsunderroyaltyagreementsforoilandgascompanies.TheinteractionamongthesediversegroupswillbeakeyvalueofCOVE.Itwillbeaconditionoftenancythateachresidentcommittoopenengagementwithothertenantsregardingresearchandcommercializationopportunities.SucharequirementreflectstheexperienceofIceland’sOceanClusterorganizationwhichhasreachedouttoestablishcollegialrelationswithcounterpartsinPortland,MEandGloucester,MA.COVEshouldbecomeamemberofthistransnational“club”.WhileCOVEwillhaveaniconicphysicalpresenceonHalifaxharbour,itsprogrammingimpactwillbedesignedtoextendacrosstheregionandinternationally.Programswillbedesignedtosupportbothfull-timeresidentsaswellasvirtualmembers.VideoconferencingandregularvisitsbyCOVEstafftootherpartsoftheregionwillensurethatthefacilityhasvaluetotheentireprovinceofNovaScotiaandwellbeyond.FurthersolidifyingthereputationofNovaScotia’soceantechnologycluster,COVEwillestablishanetworkofaffiliationswithleadingclustersglobally,initiallyinNewEngland,CaliforniaandWesternEurope.

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5.2 Recommendation on the Centre for Ocean Ventures & Entrepreneurship (COVE)

To ensure that COVE is able to fulfill its role as an anchor institution of Nova Scotia’s Oceans Innovation Cluster, the Province should:

a) On an urgent basis, work with stakeholders—including, but not limited to, provincial crown agencies and the Institute for Ocean Research and Enterprise (IORE)—to establish a governance and management structure for COVE that provides sufficient budget and independence for COVE to operate as a private sector organization;

b) Assist COVE to secure operating support from federal funds earmarked for support of innovation clusters as well as programs that support incubators and accelerators;

c) Leverage federal funding programs for research and commercialization to support creation at COVE of an industry-led applied research consortium in ocean technology for Atlantic Canada. This could draw on the experience and programs of CRIAQ, a successful Quebec-based consortium in aerospace.

d) Provide all appropriate support to COVE’s efforts to secure funding from one or more large industrial partners in the context of the ITB/VP policy or otherwise; and

e) Make available immediately adequate bridge funding (e.g., $1 to $2 million per year) to support COVE’s management functions until longer term funding is secured; then a reduced amount once other federal and industry contributions are secured.

The Contribution of Ocean Innovation to Environmental Sustainability Oceans cover 70% of the planet’s surface. It is only because we are largely unaware of this vast aquatic environment that we fail to recognize, for example, the pivotal role played by oceans in climate change—the oceans are an enormous heat sink and absorber of CO2 –and the complexity of the ecosystems below the waves. Thanks to new observational technologies, many of which are being developed in Atlantic Canada, the ocean environment is slowly becoming more “transparent,” thus opening vast new pathways for research to understand the planet’s last great frontier. The new Ocean Frontier Institute and many other research initiatives throughout Atlantic Canada will be at the forefront of this endeavor (Box 5B). With new understanding will inevitably come new human uses for the ocean and its web of life. Fortunately, these possibilities are emerging at a time of growing awareness of human environmental impact. Sustainability has become the watchword of our era. It must therefore be a prominent theme of the oceans cluster in Atlantic Canada. Two examples – the commercial fishery and offshore aquaculture—will illustrate. The commercial fishery in Nova Scotia, though too often regarded as a traditional industry with a limited future, has benefited from a number of innovative initiatives, by both SMEs and large companies, to dramatically improve productivity, develop new products, and open markets all over the world. A number of highly entrepreneurial business people have shown the way to much

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greater value added and strong export growth in a traditional, rural-based sector. These successes only underline what is still to be achieved if the rest of the industry embraces innovation. Two outstanding examples—Louisbourg Seafoods and Clearwater Seafoods—are described in Boxes 5D and 5E.

Our commercial fishery resources must of course be harvested sustainably and that has long been a core objective of DFO’s stock assessment science, but much still remains to be understood about the complex, interacting ecosystems that are involved. Ottawa’s new commitment to revitalize government science is welcome and should open up new opportunities for collaboration between DFO and universities and ocean technology companies in Atlantic Canada. Nova Scotia’s ocean technology expertise in sensors, robotics, AUVs, coupled with the advanced data analytics strengths at several universities in the province, create significant opportunities to understand the continually evolving environmental and sustainability implications of the commercial fishery. At the same time, the development of more innovative

5D LouisbourgSeafoodsWhenthecodfisherywascollapsinginthe1980s,LoriandJimKennedydeterminednottowasteacrisis.TheybecameentrepreneursandstartedLouisbourgSeafoods,whichnowboastsseveralfishplants,13fishingvesselsand500employees.LouisbourgSeafoodshasalwaysbeeninvestinginequipmenttoproduceahigherqualityproductwhilereducingimpactontheoceanecosystembyminimizingby-catchanddiscardmortality.AsmembersoftheWorldOceanCouncil,thecompanypromotesinnovationtoensuretraceable,andsustainableproducts.ThecommitmenttoqualityandinnovationhasmadeLouisbourganexportphenomenon.WhentheU.S.economywashitbythe2008recession,thecompanydoubleddownoninnovation,investedinnewequipment,increasedproductivityanddiversifiedtheirmarketsintoEuropeandAsia.Louisbourginvestsinyoungtalent,andgivesthemtheroomtoinnovate.EmployeeslikeAdamMugridgeandGlenFewer,whograduatedfromDalhousie’smarinebiologyprogram,havehelpedthecompanyrecentlyexpandintoaquaculture;createastartuplookingattheinnovativeuseoftraditionalprocessingwasteby-productsbasedonamulti-yearresearchpartnershipwithCBU;andformacompanyinvolvedintheproductionofmarineplantsforagricultureandcosmeticproducts(NaturalOceanProducts,awinnerofInnovacorp’si3startupcompetitionin2013).ThefederalBuildinCanadaInnovationProgrambecameafirstcustomerfortheirnewliquidseaweedfertilizerproduct.Louisbourg’scommitmenttoinnovationisreflectedinarecentexperimentwiththegreaterSydneytechcommunity.ThecompanybegantoworkwiththeprogrammersandstartupenthusiastsonacollaborationthatledtotheSea++Competition,inwhichLouisbourgSeafoodsofferedafirstprizeof$5,000.Therewerepositivebenefitsbeyondthecompetitionitself.LouisbourgSeafoodshiredseveraloftheparticipants,andhavingseenthetalentavailableamongtheIsland’syouth,andtheideasgeneratedduringSea++,severalnewprojectshavebeendeveloped.OneaddressesdatacollectionandanalyticsassociatedwithLouisbourgSeafoods’aquacultureoperation,anotherisintroducinganewITsystemtosupportthecompany’ssupplyandlogisticsoperations.LouisbourgstaffinvolvedinthecompetitionpointtotheknowledgemobilizationassociatedwithleveragingthetalentsofyoungCapeBretonersandgivingthemareasontostayontheIsland.TheSea++competitionunderscorestheimportanceofthegrowingtechnologyhubinCapeBretonandhowinnovativetechnologiescanaddresstheneedsofacompanyinaresourcesectorthatisamainstayofNovaScotia’sruralcommunitiesandasignificantcontributortoexportexcellence.

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and sustainable harvesting methods is a constant challenge to innovation, requiring design of catching technology that has less impact on seabed habitat, is more species-selective, and operates more energy efficiently. As one of the world’s leading fisheries economies, Atlantic Canada should be doing a great deal more to develop and market innovative technological solutions to these sustainability challenges.

A second example where sustainability and economic opportunity intersect in an oceans context is the case of deep ocean aquaculture, currently being pioneered by Nova Scotia entrepreneur, Robert Orr (Box 5F). This technologically demanding initiative could eventually yield a vast new food source to meet a rising global demand for high-quality animal protein that is facing a relatively static supply of sustainable sources on land and of wild fish stocks. Offshore aquaculture could provide a sustainable solution although there are many biological, engineering and economic issues that will only be resolved through innovation informed by research and development.

5E ClearwaterSeafoods

IsClearwateratechnologycompany?Forabusinessthatsoldmorethanhalfabilliondollarsofseafoodin2015,thisseemslikeanoddquestion.Buttechnologyiscoretoeverythingtheydo.ClearwaterSeafoodsisthelargestholderoflicensesandquotasforshellfishinCanada,andoneofthemostinnovativeplayersinthefisheriessectorintheworld.Averticallyintegratedfirm,ClearwateroperatesprocessingplantsthroughoutAtlanticCanada,andmanagesalogisticsanddistributionnetworkwhichtouchesfortycountries.Clearwaterhasalwaysbeeninternationalandforward-thinking:fromtheentrepreneurialspiritofJohnRisleyandColinMacDonalddrivinglobsterstoBostonwhentheystartedthecompanyin1976;toshippinglobsterslivetoEuropeinthe1980s;totoday,wherenearlyallofitsrevenuescomefromexportmarkets.Earlyon,Clearwater’smanagersrecognizedthepromiseofexportmarketsandputinplacethetechnologyandsystemstoensurethefreshestpossibledelivery.ClearwaterhelpedtopopularizesurfclamsinJapan,anddevelopedtechnologybywhichtheycouldbeshippedcheaplyfromNewfoundlandtoEastAsiawithoutsacrificingqualityorvolume.Clearwaterhasdevelopednewend-userproducts(suchaspackagedbacon-wrappedscallops)andhasfoundapracticalwayto“brand”alivelobsterusingaspeciallogoedsleevethatfitsoveraclaw.Recently,ClearwaterhasgainedsufficientreputationandtrustintheChinesemarketthatithasbeguntoselldirectlytoChinesesupermarketsratherthanjustthroughwholesalersandthehospitalityindustry.Atechnologyinnovator,Clearwaterusesautomatedshuckingmachineswhicharetwiceasefficientatharvestingscallopsaspreviousmethods.Itisbecomingabigdataleader,gatheringsonardataontheenvironmentandharvestingwhichcanenhancelong-termproductivityandsustainability.TechnologyhelpsClearwaterlowercosts,reduceenvironmentalimpacts,andbecomeanevenmoresustainablecompany–because,afterall,theirbusinessdependsonarenewableresource.

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5.3 Recommendation on Sustainability and the Oceans Innovation Cluster “Sustainability” should become a strength of Atlantic Canada’s Ocean Innovation Cluster and a motivation for both research and technological innovation. To this end: a) COVE’s new management should lead a collaboration with representation from industry,

relevant federal departments, and the Ocean Frontier Institute to develop a roadmap of areas where sustainability objectives intersect with research and commercial capabilities that are resident in the region, including sensors, robotics, AUVs, and advanced analytics;

b) Based on this assessment, the federal government should allocate a portion of the $800 million budget earmarked to support innovation clusters to create an “Ocean Sustainability Innovation Fund” that would support, on a competitive basis, projects that demonstrate innovative approaches to oceans-related sustainability issues; and,

c) To encourage further development of projects that demonstrate good commercial potential, the government should permit under the ITB rules a “multiplier” for ITB expenditure related to projects that have been selected for funding under the competitive process recommended in (b) above.

5F CunadelMar:AGlobalPioneerinOceanAquaculture

Withtheriseofaglobalmiddleclassastheemergingeconomiesbecomemoreaffluent,traditionalsourcesofproteinarereaching,orhavealreadyreached,theirsustainablelimits.Thatiswhytheglobaldemandforaquacultureispoisedtoincreasesignificantly.Infact,almosthalfofhumanseafoodconsumptionisalreadyfarm-raised.Anemergingfrontiertechnologyisoffshoreaquaculture.Deepoceanaquaculturesiteshaveadvantagesinscaleandsustainability,butfacesignificantprocesstechnologychallengesthatwillcreateopportunityintheformofnewdemandforoceansensors,marinerobotics,heavyengineeringanddata.Large-scaleoffshoreaquaculturewouldthusdrawonNewfoundland’soceanengineeringexpertise;NovaScotia’s expertise in sensors, robotics and big data; and the marine bio-science expertise throughoutAtlanticCanada.CunadelMar is aprivateequity firmmanagedbyNova Scotia entrepreneur,RobertOrr. The companyprovidesfinancing,governance,andadvisoryservicestoinnovativeoceanaquaculturecompaniesthatareenvironmentallyandsociallyresponsible.Itsfocusisonoffshoreaquaculturewellremovedfromsensitiveinshoreandinlandareas.CunadelMar’sportfoliocompanies(whichincludesOpenBlue,operatoroftheworld’slargestdeepwateropenoceanaquaculturefarmoffPanama)areshiftingaquaculturepracticesina more efficient and sustainable direction by pioneering new production techniques and by revivingpotentiallyprofitablespecies.OffshoreaquacultureisanindustrystillintheR&Dstagebutwithpotentialtohaveanenormousimpactonhealthy,sustainablefoodproduction.

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Chapter 6 KEEPING GOVERNMENT FOCUSED ON INNOVATION “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change” — Charles Darwin The innovation strategy detailed in previous chapters includes recommendations in respect of the enabling role of government; primarily through policy, programs and investment. But the strategy, to this point, has not addressed innovation within the public sector itself. This is a significant omission since the government of Nova Scotia is by far the largest single entity in the economy, accounting for more than $9 billion of program spending and employing tens of thousands of Nova Scotians either directly or in funded activities such as health care and basic education. This final chapter therefore addresses the innovation challenge facing the public sector with several examples that illustrate the opportunity to do better. But these only scratch the surface. The chapter concludes with a key recommendation—arguably the most important in the report—that the Province assign a clearly identified centre of day-to-day responsibility to champion the action agenda that has been proposed. Decades of experience demonstrate beyond a doubt that external advice lands with a thud on the desks of public service managers who are constantly under the gun to deliver on existing, well-established responsibilities. Without leadership to set new priorities and new accountabilities, the press of “business as usual” relegates every report like this to the proverbial dusty shelf. Will this time be different? Enabling Innovation in the Government of Nova Scotia Governments, by nature, are not very innovative. There are some good reasons why that is usually the case. In the first place, all big organizations, from banks to armies to multinational corporations, have to operate within formalized rules in order to keep a large number of individuals and processes aligned toward common objectives.36 The disruption of innovation is usually counterproductive, at least in the short run. Conservatism is therefore inbred in the bureaucratic DNA. In the special case of government, where screw-ups get all the press, every failure is particularly heavily penalized. But innovation is risky by its very nature and, in the glare of the media or the scold of the opposition critic, the risk is usually perceived to exceed the reward. On the other hand, the public rails against the presumed “waste and inefficiency” and indifferent service of government, and resists any tax increase. So there is, after all, a reward for

36Thatiswhy,asDilbertsays,“Largecorporationswelcomeinnovationandindividualisminthesamewaythedinosaurswelcomedlargemeteors.”

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a government that commits to finding new or better ways of doing things—that is, for a government that innovates. The prevailing balance of incentives inside government is nevertheless heavily tilted toward the tried and true of the status quo. That is why innovation rarely emerges without strong and sustained leadership encouragement and reward. This can arise naturally in isolated cases, thanks usually to the creative spirit of an individual manager or small group. For an example close to home, consider the story of the winner of the Gold Award for Innovative Management from the Institute of Public Administration of Canada (Box 6A). While inspiring examples like this prove that innovation in government is possible, unfortunately they are too much the exception.

A systematic approach to innovation in government must respect the very real constraints identified earlier. Wholesale changes rarely, if ever, work. They are like trying to change a tire on a moving car. More realistic is to introduce an innovation on a smallish scale (a pilot) so that its effect can be isolated and its practical advantage demonstrated. Then, like any innovation, its impact will depend on the extent of diffusion and uptake. Both the pilot and the uptake need to be strongly encouraged from the top to overcome inbred resistance. But if government is going to goad business in Nova Scotia to be more innovative, as indeed it should, government should be prepared to take more of its own advice. After all, it is the elephant in the room. What follows is a brief and somewhat speculative introduction to some prominent areas of opportunity for innovation in a public service context—specifically related to healthcare, “digital government”, and social innovation.

6A InnovationinGovernment–TheNovaScotiaTrunkMobileRadioInitiative

In2016,theNovaScotiaDepartmentofInternalServices,PublicSafetyandFieldCommunicationsreceivedtheGoldAwardforInnovativeManagementfromtheInstituteofPublicAdministrationofCanadaforthe“TrunkMobileRadioInitiative”(TMRI).Theprestigiousawardisgivenannuallytogovernmentorganizationsthathavedemonstrated exceptional innovation. TheTMRI created themost interoperablepublic safetyradiocommunicationssysteminNorthAmerica,connectinggovernment,non-profit,andprivatepartnersacrossmultiplejurisdictions,enablingthemtocommunicateeffectivelytoprovideemergencyservices.InNovaScotia,thenewsystemsupportsallpolice,fire,EMS,SearchandRescue,municipalEMO,14provincialdepartmentsand,fourfederaldepartments,servicingapproximately20,000usersacross80organizationsand sectors. More recently, it has spread to other parts of the Maritimes, making it the first multi-province/statesysteminNorthAmerica.TheTMRIshowsthatwhenfacedwithachallenge,andprovidedwiththefreedomandresourcesnecessarytofindsolutions,publicservantshavewhatittakestocomeupwithworld-classinnovation.

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Innovation in the delivery of healthcare

Nova Scotia’s ageing population and resultant high level of chronic disease is creating a growing strain on the healthcare system and on the $4.5 billion budget that sustains it. We can see where business-as-usual is leading and it is not where Nova Scotia can afford to be. Healthcare represents, therefore, the greatest single opportunity for innovative impact among all services delivered by the Province. Innovation holds forth the tantalizing win-win prospect of better patient outcomes at lower cost, leading to healthier people, living and working longer. It is important nevertheless to acknowledge just how large, complex and interconnected the healthcare system is. Experience in Canada and abroad has shown that there are no easy fixes and certainly no “silver bullets”. That is why a healthcare innovation strategy must balance ambition with pragmatism. But unless you start you will never finish. OPOR and a laboratory for e-health and m-health The most fundamental place to start is with the electronic medical record, which makes patient information instantly accessible and portable. Nova Scotia is pursuing this approach through a single province-wide electronic medical information system called “One Person, One Record” (OPOR). This has been enabled in principle with the merger of nine regional health authorities into one – the Nova Scotia Health Authority, as well as the IWK Children’s Hospital. Meanwhile, the healthcare industry is on the cusp of a new wave of information technology adoption as comprehensive “digital health” strategies emerge. These leading-edge medical information systems have the potential to be an open-source tool that collects data from healthcare providers and connected devices/monitors to give both providers and patients access over the Internet or by mobile phone. It promises more patient-centric healthcare and will enable mobile health applications that can improve care delivery in rural communities or directly in the home. By combining OPOR with a strong ICT industry, big data capabilities, and a top-notch medical and clinical research community, Nova Scotia has a realistic opportunity to be a leader in Canada in the use of data, analytics and mobile technology to transform healthcare delivery. The added benefit in so doing would be to create economic opportunities in a vast new digital health industry that is still in its formative stages. More specifically, there is now the chance to exploit a first-mover advantage for Nova Scotia to use its size—not too small to be a test case, and not too large to be stymied by inertia—be an incubator for healthcare transformation in Canada, which could then be exported. To this end, the Nova Scotia Health Authority, the IWK and Dalhousie Medical School, with support from the provincial Department of Health should create an electronic-health and mobile-health research lab, applied testing program, and accelerator program to develop, test, and implement e-health and m-health solutions. Because projects like OPOR are very expensive and complex, they will not be implemented quickly and therefore neither will the creation of the e-health and m-health research/test facility.

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Centre for Innovation in Healthcare Delivery The Nova Scotia Health Authority, the IWK and Dalhousie Medical School, with support from the provincial Department of Health, should create a multidisciplinary centre for innovation in healthcare delivery. The centre would include not just healthcare professionals, but also relevant professionals like designers, psychologists, social workers, engineers, and data scientists. The Nova Scotia Health Authority could present significant and complex problems to the centre, and teams could work over several months to develop innovative and operationally practical solutions for in-service trial, on a pilot basis, in collaboration with the Nova Scotia Health Authority and one or more participating hospitals. Extending the TRIC grant model Government employees need to be encouraged and enabled to apply an innovation lens to their daily work. A proven model already exists in the innovative “Translating Research Into Care” (TRIC) grants introduced in 2013 in the QE II and IWK and funded by the QE II Foundation (Box 6B). The concept should be generalized and adapted for application in provincial service delivery functions, including at least P-12 education, community services, and internal services. The funding support required for these “Innovation Trial Projects” would be very modest relative to the potential benefit, both in improved service and in implanting a culture of managed innovation.

6B TranslatingResearchIntoCare–IWKHealthcareImprovementResearchProgramIn2013,theIWKHealthCentreinHalifaxestablishedthe“TranslatingResearchIntoCare”(TRIC)program.The program, financed by the IWK Foundation, funds point-of-care research that translates existingresearchevidenceintobetterservicedeliveryandpatientcareattheIWKandQEII.Supportisofferedtoprojectsthatimprovepatientoutcomes,reducewaittimes,improveaccessforunder-servedpopulations,andreducecosts.Threelevelsoffundingsupportareavailable,rangingfrom$3,000to$60,000.Projectsareco-ledbyresearchersandadministratorsandmustincludethe“patientvoice”.Operationalcostsarenot covered and are absorbed by the department. For the first adjudication process in 2013, the IWKFoundationallocated$308thousandto15ofthenearly40proposalsthatwerereceived.Theprogramhasalreadyledtoimprovementsinhealthcaredeliveryatthetwohospitals.Forexample;oneTRICgrantwasused todevelopand trial the “iCareAdventure” appon iPadminis, given to children in the emergencywaitingroom.Theapp isdesignedtoentertainchildrenwithgamesandactivities,whilesimultaneouslysendingreminders tochildrenwithdehydrationsymptomstodrinktheirPedialyte.Theappalsocollectsdataonthechild’spainleveltoprovidephysicianswithinitialdatabeforetheyevenmeetthepatient.Otherresearchprojectsareinvestigatingwaystoimprovethepre-operativeexperienceofchildrenontheautismspectrum,methodsforencouragingchildrentostaystillwhilereceivingMRIs,andtheeffectivenessofanonlinecommunicationportalforhome-dialysispatients.

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Innovation in “digital government”

Nova Scotia’s Internal Services Department, and particularly the Information and Communications Technology Services (ICTS) branch, are motivated to be innovators in “digital government” to achieve ambitious objectives in respect of both operational efficiency and service quality. A lot could be learned from Estonia, a small Baltic country that is the world leader and pathfinder in digital government (Box 6C). Similar in scale to Nova Scotia, Estonia could be a mentor to help bring the province to a position of digital government leadership in Canada.

An immediate opportunity much closer to home would be to participate in the “Innovation Outposts” initiative recently launched by Volta Labs for large corporate partners (Box 6D). Participating companies locate small teams at Volta to work on “intrapreneurial” innovation and experimentation in a culture that nourishes new ideas. It is based on a similar program at Waterloo’s Communitech which has as clients corporations like General Motors, Canadian Tire, TD Bank Group, Manulife, Canon and Deloitte. Atlantic Lottery Corporation is the first Innovation Outpost at Volta. The provincial government should locate a digital government team at Volta. This could be a three-year partnership, similar to corporate partners, and focused on specific projects. A high priority first candidate would locate a team to focus on simplifying and digitalizing the process for incorporating a business in Nova Scotia, which currently is lagging far behind electronic processes in other provinces, and in this province is archaic, time-consuming and expensive.

6C Estonia:TheGlobalLeaderine-GovernmentEstonianscanstartabusinessonlineinaquarterofanhour,andcanfiletaxesinamatterofminutesbysimplycheckingboxesinarevenueagencyweb-app.Iftheysochoose,alloftheirengagementswiththeStatecanbepaperless—nogovernmentagency can legally rejectadigitallysignedform.SincegainingindependencefromtheSovietUnion,Estoniahasbuilttheworld’smosttechnologicallyinnovativepublicservice.ThesmallBalticstatehasradicallystreamlinedthedeliveryofpublicservices,savingcivilservants,businesses,andprivatecitizenstimeandmoney.AttheheartofEstonia’sexperimentine-governmentisa secure, internet-based data exchange system called X-Road. This is a distributed architecture thatconnects many discrete databases, allowing information to be shared with ease among governmentagencies,citizens,andbusinesses.X-RoadalsosupportstheEstonianIDcardsystem,attheheartofwhichisauniqueeIDsignaturewhichEstonianscanusetovote,accessgovernmentrecords,andevenpresentinlieuofadriver’slicense.ThissystemhasbeensosuccessfulthatTallinn,thecapitalcity,hasstartedane-Residencyprogram,whichcreateseIDsforforeignnationalsinordertoimprovetheeaseofdoingbusinessin Estonia. Critically, eID holders may also choose which government agencies have access to theirinformation, and what information is shared. Estonia set out to increase national competitiveness byimprovingtheefficiencyofpublicadministration.Byharnessingexistingtechnologiesandapplyingtheminnovelways,atinycountryontheperipheryofEuropeachievedastoundingresults.

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Social Innovation Social enterprises and social innovation provide a new mechanism for addressing complex social issues by engaging the private and “third” sectors, to develop solutions that produce better outcomes, potentially with less public funding. To encourage this approach, the Province of Nova Scotia has introduced a social entrepreneurship strategy. To go an important step further, the Province should also engage directly in social innovation in the delivery of its own services; for example, through “change labs” and social impact bonds. Change labs Change labs represent a new approach to particularly recalcitrant problems that have not yielded to traditional solutions. These could include such tough issues as obesity, sexual violence, racism, mental health, and aboriginal justice. The approach is designed to allow non-traditional solutions to emerge through collaboration. The process begins with defining the full dimensions of the problem by bringing together many different people or groups that have a relationship with the topic at hand but from a wide range of perspectives and experience. Since the process is designed to address the most difficult social challenges, it can take months and even years to address the entire situation. However, through a “rapid prototyping” process, various specific elements of the problem space can be tackled as part of the broader approach. The method is being pioneered in Nova Scotia through the Change Lab Action Research Institute (CLARI) located at Saint Mary’s. It is a partnership with five other universities--Acadia, Cape Breton, Mount Saint Vincent, St.FX, Université Sainte-Anne, and the NSCC. The provincial and federal governments should engage CLARI directly to tackle some of the most solution-resistant social problems facing Nova Scotia. Provincial staff would participate in the change lab to work with students, researchers, community organizations, and not-for-profits to explore the application of this remarkably innovative approach.

6D VoltaOutposts

Volta has partneredwith the Atlantic Lottery Corporation to create Atlantic Canada’s first “InnovationOutpost”, based on the model pioneered by Communitech in Waterloo, Ontario. It is anticipated thisprogram will generate significant innovation applicable to the gaming industry. The partnership andassociatedprogrammingwillsetanexemplarystandardforsolvingcomplexproblemsfromtheoutsidein.Theoutpostleadisthe‘founder’and‘CEO’ofalabthatisallaboutbrainstorming,customerdiscovery,andrapidprototyping.Understandingwhatcustomerswantandhowtoengageyouthshouldbetopprioritybeforeprototypingstarts.Volta’seducationaleventsandmentorshipwillguidetheteamthroughbusinessmodelnavigationandthestepstobuildproductswithstrongvaluepropositions.Attheendofeachweek,thelableadwillbeencouragedtobouncethenewestideaorchallengeoffthestartupfoundersatVolta,aspeertopeermentorshipiskeytoefficiency.

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Social finance Social finance is an approach to mobilizing private capital that delivers a social dividend and an economic return to achieve social and environmental goals. It creates opportunities for investors to finance projects that benefit society and for community organizations to access new sources of funds. Of particular interest are Social Impact Bonds (SIBs), a mechanism that is increasingly being used worldwide to mobilize private capital to tackle complex social challenges. For example, SIBs are currently being used around the world to address issues such as recidivism in the prison system (Peterborough, UK) and at-risk families (Saskatoon, Saskatchewan). A Social Impact Bond is an innovative pay-for-performance approach that brings together government, corporations, private investors, foundations, service providers and social enterprises to create novel, outcomes-oriented interventions to pressing social challenges. Through an SIB, private funds are used to finance investment in social program interventions that are delivered by service providers with a proven track record. Provided that the agreed upon social outcomes and savings to government are achieved, financial returns to investors are paid by government. The SIB mechanism encourages a more outcomes-focused approach in certain social programming contexts since the return to the bond investor depends on the extent to which measurable targets are actually achieved. Nova Scotia should pilot one or more social impact bonds to address a social programming area where there has already been experience elsewhere. This evidence-informed approach would be more likely to be credible with potential investors and would improve the odds of an early success to build upon. 6.1 Recommendation on Enabling Innovation in the Government of Nova Scotia The Province should commit to foster a culture of innovation in public service functions with the goals of stimulating employee creativity, improving service quality, increasing productive efficiency and thereby reducing cost, and creating economic opportunities that inevitably arise from innovative initiative. Early steps to be taken by the government to this end could include the following: a) To maximize the economic opportunity created by the pending introduction of the “One

Person One Record” electronic health record, create a research lab, applied testing program, and incubator/accelerator facility to develop e-health and mobile-health solutions for the global digital health market.

b) In collaboration with the Nova Scotia Health Authority, IWK Hospital, and the Dalhousie Medical School, create a multidisciplinary “Centre for Innovation in Healthcare Delivery” to develop innovative approaches to significant care delivery challenges for trial in participating hospitals and health centres throughout the province.

c) Extend the concept of TRIC (Translating Research Into Care) grants, pioneered at the IWK/QE II hospitals, to other selected provincial services—e.g., P-12 education and community services. Develop protocols and provide funding for “Innovation Trial Projects” to be tested in operating environments.

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d) Mandate the Department of Internal Services to accelerate the implementation of “digital government” services. To this end, seek first-hand advice from successful pioneers like Estonia, and establish an “Innovation Outpost” at Volta Labs.

e) Experiment with innovative approaches to social programming by, for example, issuing a Social Impact Bond and assigning provincial staff to engage with the new Change Lab Action Research Institute at Saint Mary’s University.

Keeping Focused on the Innovation Strategy “If you always do what you always did, you will always get what you always got.”

– Albert Einstein Innovation is never easy. It disrupts “the way we have always done things around here.” Yet as the philosopher, Francis Bacon, so wisely observed some 400 years ago: “He who will not adopt new remedies must expect new evils; for time is the greatest innovator.” Bacon understood that evolution is the characteristic of all things, so those who stand pat are doomed to be passed by. We know this; yet we resist the innovators among us because it is always easier to put off change until tomorrow. But then “tomorrow” becomes “today” and procrastination reproduces itself. So innovation is held at bay until either some catastrophe imposes change, or the cumulative cost of inaction finally crosses a tipping point where change can no longer be resisted. By then it may be too late, or at the very least, valuable time will have been lost, allowing the innovators, who are quicker off the mark, to seize the day. As the Ivany Commission warned in its seminal diagnosis of Nova Scotia’s economic prospects—Now or Never—the province cannot afford to put off until tomorrow what we know needs to be done today. The Ivany Commission articulated a consensus that Nova Scotia needs to change, and to change is to innovate. Yet experience has shown that the significant changes that are required will be put off unless deliberate and forceful steps are taken to transform a habit of reactivity into one of proactivity. The innovation strategy proposed in this report can ultimately only be implemented by the businesses, the educational and research institutions, the risk investors, and the working people of Nova Scotia. But without the animating force of political leadership there is no reason to believe that the course we have been on will, by itself, change for the better. If it could have, it would have. So the indispensable role of government is to be an enabler of the innovation needed for Nova Scotia to change course. Through well-designed policies and programs, government can alter the incentives that arise from the market and from other social and institutional processes—away from incentives that are frustrating innovation and toward those that promote innovation.

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Still, for the reasons explained earlier, few institutions are more change-resistant than government itself. So if left alone, advisory reports like this one, and dozens that have gone before, will have little or no influence once the first blush of enthusiasm wears off and everyone goes back to their day jobs. A deliberate step has to be taken to avoid this predictable outcome. This must begin with a clear articulation by the Premier that implementation of an innovation strategy will be the number one economic priority of the government. Then a centre of responsibility must be identified and given the day-by-day task of ensuring that the innovation strategy is in fact implemented. Although the specific measures in the strategy will involve many departments and agencies, overall responsibility to serve as the “champion” rests most naturally with the Department of Business, which was created as a central agency to foster economic growth. In view of the well-recognized tendency for any broad, cross-government initiative to be relegated lower priority in the daily press of urgent matters, a means must be put in place to sustain focus on the innovation strategy. This requires that milestones and metrics be established and regularly reported on since “what gets measured is what gets done.” The new “Delivery Unit”, reporting to the Premier, was created for just such a purpose. The Department of Business, as champion of Nova Scotia’s innovative growth strategy, must be suitably empowered by the Premier and Chief Deputy to fulfill its essential responsibility. To be effective, the Department will need financial resources to “incentivize” certain other departments to undertake initiatives that will contribute to the innovative growth strategy. Long experience with failed coordinating agencies at the federal level in Canada has demonstrated beyond question that without funds to support collaborative initiatives with other key departments, the coordinating function cannot be effective. Put bluntly—money talks. The Department of Business must also be given prominence as a central agency and as the driver of innovation and growth policies needed to grow the economy, and the tax base to support essential services. Of course, it is the sole responsibility of the Department of Finance and Treasury Board to oversee the provincial budget and program spending. Although there may be some natural tension between the economic roles of the Department of Business and the Department of Finance and Treasury Board in the short-run, they must work together to enable the Province to implement the innovative growth strategy, and thus achieve their common goals in the long-run: fiscal health and a more vibrant and prosperous economy. 6.2 Recommendation on Sustaining Government’s Commitment to an Innovation Strategy

To ensure timely and effective implementation of an innovation strategy for Nova Scotia, it must be a clearly articulated priority of the Premier and Cabinet. Responsibility for implementation should rest with the Department of Business. The Economics and Statistics Division of the Finance Department would support data collection and analysis, and the newly-created Delivery Unit would provide assistance, establish milestones and metrics, and report on progress. In its role as “champion” for the innovation strategy, the Department of Business would:

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a) Develop an overall plan to implement Nova Scotia’s innovative growth strategy; b) Convene cross-department collaboration in support of the strategy and contribute funding to

initiatives agreed with other Departments; c) Represent the Province of Nova Scotia in collaboration with federal officials and with other

Provinces on aspects of the innovation strategy that require inter-governmental co-operation (e.g., in the context of the Atlantic Growth Strategy);

d) Represent the Province in collaboration with non-government stakeholders in cases and where the relevant responsibility does not rest within one department or agency; and,

e) Generally, act as an advocate for the innovation strategy across the Government of Nova Scotia.

To effectively coordinate and champion the innovative growth strategy, the Department of Business must be given financial resources to enable it to fund certain key initiatives both alone and in collaboration with other Departments.

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EXECUTIVE SUMMARY: LIST OF RECOMMENDATIONS

Chapter 1 PREPARING THE TALENT FOR AN INNOVATIVE ECONOMY 1.1 Universal Computer Literacy a) To establish Nova Scotia as having among the world’s most computer-literate populations,

continue to enhance and accelerate coding and related computer skills in grades P-12, with a primary focus on using this as a tool for students to develop creativity, logical reasoning, teamwork and problem-solving skills. This initiative will need to be supported with significant continuing investment in teacher training and facilities.

b) Collaborate with the federal government and private ICT firms to provide greater access throughout Nova Scotia to higher speed and quality broadband internet service.

The foregoing recommendation is foundational, but should be regarded as only one, albeit extremely important, aspect of a broader re-tooling of the basic education system to make it relevant to the learning and innovation skills required to succeed in the digital age. To this end, there is a need, for example, for: • enhanced mathematics instruction and support; • learning that encompasses creativity, teamwork, critical thinking and problem solving; • “maker-spaces” and many more hands-on technology learning experiences; • entrepreneurial opportunities for grade school students

to increase awareness of the nature and benefits of entrepreneurship; and • more effective practices in turning around low-performing schools. This should lead to better

access to post-secondary institutions for students from such schools with the help of programs to improve their readiness to succeed, particularly for “under-represented” groups in Nova Scotia—specifically, First Nations, African Nova Scotians, and persons with disabilities.

1.2 Work-Integrated Learning To fulfill an ambition for Nova Scotia to be a talent leader in Canada, post-secondary institutions in collaboration with business and not-for-profit organizations should ensure that all students have the opportunity for a work-integrated learning (WIL) experience, and the Province should increase funding for approved WIL programs to match demand.

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1.3 Innovate to Opportunity To encourage SMEs to become more innovative and export-oriented, the Province should create an “Innovate to Opportunity” program that would: a) Provide multi-year support to selected SMEs that hire, on a permanent basis, recent highly-

qualified graduates of Nova Scotia post-secondary institutions (typically at the Master’s degree level). Support should be for a minimum of three years to provide time to have a meaningful impact on host company innovation, and front-loaded to increase the incentive to hire.

b) Select eligible companies, among applicants, based on potential to become exporters or to significantly improve existing export performance.

c) Co-ordinate with the “SME Export Accelerator” program (Recommendation 4.1) to increase the likelihood that a company is selected for both programs since both are strongly complementary. (Simultaneous selection should not, however, be a requirement of either program.)

1.4 Diversity and Job-readiness—“Atlantic TechHire” The federal government, through ACOA, should work on an Atlantic-wide basis with the private sector, departments of education, and post-secondary institutions to develop targeted training programs to encourage and increase employment in ICT-intensive occupations for under-represented groups, including First Nations, people of colour, and persons with disabilities. Chapter 2 BUILDING UP NOVA SCOTIA’S RESEARCH EXCELLENCE2.1 Creation and Role of “Research Nova Scotia” • Consolidate and broaden the Province’s post-secondary research granting functions--

presently conducted primarily through NSRIT, NSHRF and OERA--in a single organization, “Research Nova Scotia”(RNS). The consolidated organization, which should be structured as a crown corporation, would: a) Focus Provincial research funding on areas of greatest strategic importance for Nova

Scotia. (The Province should consult with the full range of research institutions and with researchers themselves to encourage proposals that are particularly relevant to achieving a more innovative Nova Scotia economy);

b) Build upon the strengths of its predecessor organizations (particularly NSHRF and OERA) ensuring that their mandates, experience, and established relationships are well-integrated in RNS.

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c) Allocate sufficient Provincial funds to maximize funding and benefits from non-provincial (primarily federal) sources through competitive research funding programs such as CFI, Centres of Excellence in Commercialization and Research, Genome Canada, and others;

d) Build up the global research excellence of Dalhousie and the excellence in particular fields within other Nova Scotia post-secondary institutions, and

e) Strengthen research collaboration among Nova Scotia’s post-secondary institutions themselves, with others in Canada and abroad, and with business and civil society.

• The Province should make available regular funding to Research Nova Scotia that is sufficient to provide required provincial matching amounts for Nova Scotia winners in federal research granting competitions. In view of the unpredictable matching requirements from year to year, the annual grant for this purpose should be placed in a trust and allowed to accumulate, up to some specified cap.

• Provide Research Nova Scotia with annual funding to cover the Provincial matching requirement for the growing “Mitacs” business research internship program.

• Create, within Research Nova Scotia, a new “Research Opportunities Fund” that would support targeted research-based initiatives in areas of particular importance to Nova Scotia. The opportunities could involve, for example, federal research funding competitions or collaborative R&D projects with business partners. Opportunities should be identified according to criteria that include alignment with provincial priorities, research excellence, training of students, and significant leverage of Research Opportunity Funds. The Province should provide RNS with $5 million per year, for an initial 5-year pilot period, exclusively to support the Fund.

• The Province should increase, over time, its level of post-secondary research support to the national per capita average. In 2017-18, funding of Research Nova Scotia (which will include amounts budgeted under the predecessor organizations) should be sufficient to meet the anticipated amount required in that year to fulfill the mandate elements outlined above.

2.2 Research Collaboration Between Business and Post-Secondary Institutions • Establish within the mandates of the “strategic triad” of Research Nova Scotia, Innovacorp,

and NSBI a requirement for mutual collaboration to develop strategies that will increase engagement of PSE researchers with business to work on challenges that are likely to have high economic impact, either in the short or longer term.

• Build on the existing Productivity and Innovation Voucher program by increasing the upper limit per application, which is currently $25,000. Use the vouchers (which can be redeemed to purchase R&D services from post-secondary institutions) to encourage innovative companies to locate and invest in Nova Scotia.

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• In the context of the Atlantic Growth Strategy, NSERC and ACOA should fund an “I-Corps Atlantic”, building on LaunchDal’s I-Corps initiative to include nodes in each of the Atlantic Provinces.

2.3 Provincial Funding of Mitacs Interns Provincial funding for Mitacs research internships with business should be increased to match the growth in demand such that there is no business willing to hire a Mitacs intern that does not receive program funding. Chapter 3 NOURISHING THE STARTUP ECOSYSTEM 3.1 Seed and Venture Capital • The Province should issue the pending “Request for Proposals” for the new $25 million

private sector seed capital fund (“New Fund”) and ensure that its mandate includes provision seed and early-stage private investment in ICT-sector companies in Nova Scotia. This fund could potentially become an Atlantic-wide seed fund if the federal government and other Atlantic Provinces agree as part of the Atlantic Growth Strategy.

• The Province should immediately provide $40 million to recapitalize the Nova Scotia First Fund (NSFF) to ensure sufficient early stage capital for the startup ecosystem. Innovacorp’s mandate should focus on pre-seed, seed and “Series A” follow-on venture capital investments in complex, capital intensive sectors where private investors are reluctant to participate at the earlier stages. These “hard” sectors include health and life sciences, bio-technology, clean technology, ocean technology, agri-food, and advanced manufacturing.

• The NSFF should not allocate more than 50% of its capital to ICT-based companies. Depending on the success of the “New Fund” in providing sufficient investment for ICT startups, the Department of Business should work with the Board of Directors of Innovacorp to progressively reduce the allocation of the NSFF to the ICT sector.

• Innovacorp should continue to act as a limited partner in private sector funds that invest in ICT companies including, for example, in the “New Fund” and Build Ventures.

• Innovacorp’s performance should be measured with a balanced scorecard that evaluates its success in: (a) supporting the growth of the Nova Scotia startup ecosystem; (b) finding, funding and fostering the formation of technology-based companies; (c) attracting private co-investment; (d) helping investees grow export sales and scale internationally; and (e) achieving rate of return targets established by the Province, Innovacorp’s sole shareholder. Quantitative and qualitative measures of these objectives should be developed collaboratively by Innovacorp’s Board of Directors and the Department of Business.

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3.2 Incubators and Accelerators • The Department of Business, through Invest Nova Scotia or Innovacorp, should negotiate an

agreement with Volta Labs to provide multi-year operating support subject to outcome agreements, appropriate performance metrics, and financial controls. The amount and term of the funding agreement should be sufficient to provide a measure of stability as well as enough time to judge performance—e.g., $750,000 per year over seven years. Similar funding agreements have been entered into with Propel and Navigate, and should be considered for other enabling organizations in the startup ecosystem—i.e. COVE (as described in Chapter 5), CEED, and others.

• Investments by NSFF should be incubated, as appropriate, through the Innovacorp Enterprise Centre (Health and Life Sciences), Technology Innovation Centre (Cleantech) and COVE (Oceantech). To avoid confusion, the first two should be renamed to accurately represent their focus.

• The Department of Business and the Department of Agriculture should work with Innovacorp and Perennia, the agri-tech incubator, to determine the best way to collaborate and facilitate alignment of seed and early-stage investment and accelerator programming to support the agri-tech sector.

• Innovacorp should replicate its successful relationships with out-of-province funds and accelerators—e.g., the Quebec-based cleantech fund and accelerator (Cycle Capital and EcoFuel), and Guelph-based agri-tech accelerator Bioenterprise--to develop similar relationships in other complex sectors, including life sciences and oceantech.

• Innovacorp should increase funding support provided to startup companies for travel to contact potential investors and to improve market awareness. These are areas widely recognized as significant weaknesses of the Nova Scotia startup community. In complementary fashion, PSE institutions should develop course programs in business-to-business sales and this initiative should be complemented with more targeted, short-term training provided by Innovacorp’s incubators.

3.3 Angel Investment Tax Credit The Province should replace its existing Equity Tax Credit with a refundable Angel Investment Tax Credit targeted on high-growth, innovative companies in designated sectors to include at least ICT, life sciences and medtech, cleantech, oceanech, agri-tech, and advanced manufacturing. a) Raise the investment limit to $250,000 b) Include as eligible instruments: common and preference shares as well as convertible

debentures. c) Include as eligible investors: individuals, corporations, trusts and Limited Partners, and as

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eligible investees: corporations, trusts and Limited Partnerships. d) Since the objective is to attract both risk capital and deep sector experience, eligibility for the

refundable credit should extend to those in any jurisdiction and not be limited to Nova Scotia. This could be implemented on an Atlantic-wide basis with the federal government funding the non-resident portion of the refundable tax credit. This could be achieved through the Atlantic Growth Strategy if the federal government and other Atlantic provinces agree. 3.4 Incubators and Accelerators in Atlantic Canada The federal government should provide funding for organizations that develop the “connective tissue” of innovation ecosystems in key sectors and clusters—e.g., oceantech; ICT; life sciences and medtech; cleantech; agri-food and aquaculture. To this end: a) Eligibility for ACOA funding should include both infrastructure and programming for

private sector-led incubators, accelerators, and associated research facilities. b) The federal government should ensure that the terms of the Industrial and Technological

Benefits program (see Chapter 5) provide enhanced multipliers for infrastructure and program funding for private sector-led incubators, accelerators and associated research facilities.

3.5 Later Stage Venture Capital for Atlantic Canada • The federal government should continue to fund Build Ventures, a private-sector led “Series

A” venture capital fund in Atlantic Canada. This could be done through further direct funding, but ideally it would be supported through a new Atlantic-based VCAP fund-of-funds.

• In addition, a Series B and C co-investment fund, managed by ACOA, should be established, initially on a pilot basis, to co-invest in Atlantic Canadian companies on terms that would encourage participation by venture capital investors from outside the region. An Atlantic-based VCAP fund could also invest in private-sector-led seed funds in Atlantic Canada, such as the proposed “New Fund”, Pelorus, and East Valley Ventures.

3.6 Government Procurement to Support Startups Provincial departments should have a portion of their budgets set aside to purchase from Nova Scotia companies innovative products and services, that can credibly claim to improve service and/or lower cost. This could be done on an Atlantic basis, while leveraging the federal Build in Canada Innovation Program (BCIP).

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3.7 Regional Innovation Network and Urban Innovation Districts The Province and ACOA should establish a new fund, managed by Innovacorp, to support a network of regional innovation centres in Nova Scotia and the emerging “innovation districts” in Halifax and Sydney. a) Innovacorp, working with universities and NSCC, ACOA, and local communities would

determine the appropriate support to the regional innovation ecosystems. This should include financial support to establish or expand co-working space; the delivery of programs to foster innovation and entrepreneurship; and enhancing the role of post-secondary institutions as regional hubs for innovation and development in collaboration with the regional innovation centres.

b) The fund should support initiatives to further develop the “innovation districts” (i) in Sydney, which is helping to catalyze innovation-driven entrepreneurship in Cape Breton, and (ii) in Halifax, which has the potential to evolve to national scale and serve as the anchor platform for Atlantic Canada’s startup community.

Chapter 4 GROWING INNOVATIVE EXPORTERS 4.1 Export Accelerator Program In collaboration with ACOA, the Province should establish an Export Accelerator program. The objective is to significantly increase the export ambition and capabilities of selected SMEs through an intensive multi-year program of export strategy development and tutelage led by world-class experts. The program would have the following key features: a) Developed and run by an international consulting company of the caliber of, for example,

McKinsey, BCG, Deloitte Monitor b) Available, based on selection, to SMEs that demonstrate a willingness to improve export

performance and have the potential to do so c) Organized in annual cohorts of companies (e.g., 10 at a time) that would meet periodically

for three years under the guidance of the consultants and selected mentors who have extensive export experience and will be able to provide customized and experience-based advice related to specific sectors and potential markets

d) Supported by a new “Export Accelerator Fund” to provide customized financial support through grants/loans to promote export success

e) Graduates of the program to be given preferential consideration in accessing certain government programs that aim to build export readiness

f) Participating companies to bear a share of the cost with the government assistance front-loaded to encourage initial up-take. A portion of the Accelerator costs could be performance-related based on the growth in Participants’ exports.

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NSBI would administer the program in close collaboration with, and shared funding from, ACOA. Although the Export Accelerator Program is described here in a Nova Scotia context, it would have similar benefits throughout Atlantic Canada and could be expanded as part of the Atlantic Growth Strategy, perhaps following a pilot in Nova Scotia. 4.2 Incentives for Foreign Direct Investment

NSBI’s FDI attraction strategy should complement the payroll rebate with greater emphasis on incentives designed to attract more innovative companies. To that end:

a) The Province’s Productivity and Innovation Voucher program should be expanded to include a second component designed to serve primarily as an FDI incentive, redeemable for purchase from Nova Scotia providers of services that would be attractive to innovative companies. Management of both the existing voucher (which is targeted at SMEs) and the new voucher should be the responsibility of NSBI whose mandate should be broadened to include the support of innovation and productivity of its client companies.

b) At least 25% of the annual expenditure on payroll rebates (currently about $12 million) should be allocated to “FDI vouchers”, or other credits, to be redeemed for the purchase in Nova Scotia of goods and services that will enhance the innovation objectives of the investing company—for example: customized training and skills development; R&D collaborations with post-secondary institutions; acquisition of customized equipment and services; investing in, or procurement from, innovative startups; integrating Nova Scotia companies into global supply chains.

c) The portion of the FDI incentives offered through payroll rebate should be decreased over time depending on experience with alternative innovation-oriented incentives.

d) The payroll rebate should be made more strategic by complementing the standard rate with an enhanced rate for hiring highly qualified people or people from certain groups that are under-represented in the workforce.

4.3 Support for More Rapid Diffusion of Innovation • NSBI should expand its Export Growth Program to include “innovation discovery missions”

to help smaller firms travel to learn first-hand of the best relevant ideas from around the world.

• The federal government, through ACOA and IRAP, should introduce an Atlantic-wide “Digital Technology Adoption Program”, targeted at export-ready SMEs. (This would be a re-establishment, at a regional level, of a similar pilot program that was discontinued by the previous federal government in 2014 despite a favourable evaluation.)

• The federal government, in partnership with the Provinces, should introduce an Atlantic-wide “Cleantech Adoption Program” to encourage more rapid and extensive business investment

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in cleantech. Funding could come in part from the federal government’s Low Carbon Economy Fund.

4.4 Enhancing Atlantic Canada’s Tourism and Cultural Advantage In the context of the Atlantic Growth Strategy, the federal government should establish a “Creative Industries and Tourism Innovation Fund”. In partnership with the Provinces on a shared-cost basis, the Fund would support proposals (referenced below in a Nova Scotia context) to: a) Establish new or enhanced festivals and events, with the goal of eventually having at least

two signature events—e.g., of the calibre of Celtic Colours or the Halifax Jazz Festival--each month from May through October;

b) Create a select number of signature destinations—e.g., of the calibre of the world-ranked Cabot Links and Cabot Cliffs golf courses;

c) Bring the province’s wine, craft beer, and culinary experiences to a level that is unequivocally world-class. (In view of the increasing popularity of high-quality cuisine, particularly using the freshest local ingredients, Nova Scotia has an opportunity to establish itself as a global culinary destination based on an exceptional variety of seafood, boutique agriculture, and local game);

d) Improve air access with more convenient routes to larger urban centre in Atlantic Canada; e) Establish “Creativity Districts” in strategically located communities that have high potential

for tourism development and for attracting innovative businesses and exceptionally creative individuals--for example, Lunenburg (as a World Heritage Site), Wolfville (as a university town and centre of a developing wine industry)

4.5 Atlantic Cleantech Strategy In the context of the Atlantic Growth Strategy, the federal and provincial governments should commit to a multi-year cleantech strategy that would support implementation in Atlantic Canada of the new federal climate change framework.The strategy, supported by dedicated funding from the federal government, would aim todevelop cleantech research strengths into export opportunities in areas that have strong commercial promise, including smart grid, energy storage, tidal power, and bioenergy. As a first step, the post-secondary institutions should be asked to strike a group with representatives of industry (including the electric utilities in the four provinces) and relevant government agencies, to develop a 5-year plan for submission via ACOA to the federal government.

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Chapter 5 DEVELOPING A WORLD-CLASS OCEANS INNOVATION CLUSTER 5.1 Mobilizing Nova Scotia’s Oceans Innovation Cluster Create a small senior group in the Department of Business dedicated full-time to promote and co-ordinate the Province’s support of the “Oceans Innovation Cluster” in Nova Scotia. The role of this oceans cluster “champion” would be to: a) Spearhead a coordinated effort with the other Atlantic Provinces to secure for Atlantic

Canada a share of the $800 million of federal support earmarked for “innovation clusters”; b) Specifically in the Nova Scotia context, work with businesses and the federal government to

maximize the benefit of the naval ships contract flowing from the federal Industrial and Technological Benefits/Value Proposition (ITB/VP) policy;

c) Provide Provincial assistance as required to maximize federal support to the Oceans Innovation Cluster through such programs as the Canadian Accelerator and Incubator Program (CAIP), Centres of Excellence for Commercialization and Research (CECR), Business-Led Networks of Centres of Excellence (BL-NCE), Atlantic Innovation Fund (AIF), Mitacs. Collaborate with the proposed Research Nova Scotia organization regarding the specific research aspects of these programs;

d) Foster closer relationships among federal oceans-related research facilities (e.g., DFO, NRC, DRDC), oceans-related businesses, and post-secondary institutions; and

e) Serve as the intra-government champion of the Oceans Innovation Cluster and ensure co-ordination of various supporting initiatives across the Government of Nova Scotia. A first priority in this regard should be to ensure that COVE is properly launched.

To assist in fulfillment of its role, the oceans cluster champion should create an external advisory group with representation from the key post-secondary institutions, industry, the Halifax Regional Municipality, and the other Atlantic Provinces. 5.2 Centre for Ocean Ventures & Entrepreneurship (COVE) To ensure that COVE is able to fulfill its role as an anchor institution of Nova Scotia’s Oceans Innovation Cluster, the Province should: a) On an urgent basis, work with stakeholders—including, but not limited to, provincial crown

agencies and the Institute for Ocean Research and Enterprise (IORE)—to establish a governance and management structure for COVE that provides sufficient budget and independence for COVE to operate as a private sector organization;

b) Assist COVE to secure operating support from federal funds earmarked for support of innovation clusters as well as programs that support incubators and accelerators;

c) Leverage federal funding programs for research and commercialization to support creation at COVE of an industry-led applied research consortium in ocean technology for Atlantic

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Canada. This could draw on the experience and programs of CRIAQ, a successful Quebec-based consortium in aerospace.

a) Provide all appropriate support to COVE’s efforts to secure funding from one or more large industrial partners in the context of the ITB/VP policy or otherwise; and

b) Make available immediately adequate bridge funding (e.g., $1 to $2 million per year) to support COVE’s management functions until longer term funding is secured; then a reduced amount once other federal and industry contributions are secured.

5.3 Sustainability and the Oceans Innovation Cluster “Sustainability” should become a strength of Atlantic Canada’s Ocean Innovation Cluster and a motivation for both research and technological innovation. To this end: a) COVE’s new management should lead a collaboration with representation from industry,

relevant federal departments, and the Ocean Frontier Institute to develop a roadmap of areas where sustainability objectives intersect with research and commercial capabilities that are resident in the region, including sensors, robotics, AUVs, and advanced analytics;

b) Based on this assessment, the federal government should allocate a portion of the $800 million budget earmarked to support innovation clusters to create an “Ocean Sustainability Innovation Fund” that would support, on a competitive basis, projects that demonstrate innovative approaches to oceans-related sustainability issues. To be eligible, projects would require partnership of at least one business and one research institution;

c) To encourage further development of projects that demonstrate good commercial potential, the government should permit under the ITB rules a “multiplier” for ITB expenditure related to projects that have been selected for funding under the competitive process recommended in (b) above.

Chapter 6 KEEPING GOVERNMENT FOCUSED ON INNOVATION 6.1 Enabling Innovation in the Government of Nova Scotia The Province should commit to foster a culture of innovation in public service functions with the goals of stimulating employee creativity, improving service quality, increasing productive efficiency and thereby reducing cost, and creating economic opportunities that inevitably arise from innovative initiative. Early steps to be taken by the government to this end could include the following: f) To maximize the economic opportunity created by the pending introduction of the “One

Person One Record” electronic health record, create a research lab, applied testing program, and incubator/accelerator facility to develop e-health and mobile-health solutions for the global digital health market.

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g) In collaboration with the Nova Scotia Health Authority, IWK Hospital, and the Dalhousie Medical School, create a multidisciplinary “Centre for Innovation in Healthcare Delivery” to develop innovative approaches to significant care delivery challenges for trial in participating hospitals and health centres throughout the province.

h) Extend the concept of TRIC (Translating Research Into Care) grants, pioneered at the IWK/QE II hospitals, to other selected provincial services—e.g., P-12 education and community services. Develop protocols and provide funding for “Innovation Trial Projects” to be tested in operating environments.

i) Mandate the Department of Internal Services to accelerate the implementation of “digital government” services. To this end, seek first-hand advice from successful pioneers like Estonia, and establish an “Innovation Outpost” at Volta Labs.

j) Experiment with innovative approaches to social programming by, for example, issuing a Social Impact Bond and assigning provincial staff to engage with the new Change Lab Action Research Institute at Saint Mary’s University.

6.2 Sustaining Government’s Commitment to an Innovation Strategy To ensure timely and effective implementation of an innovation strategy for Nova Scotia, it must be a clearly articulated priority of the Premier and Cabinet. Responsibility for implementation should rest with the Department of Business. The Economics and Statistics Division of the Finance Department would support data collection and analysis, and the newly-created Delivery Unit would provide assistance, establish milestones and metrics, and report on progress. In its role as “champion” for the innovation strategy, the Department of Business would: f) Develop an overall plan to implement Nova Scotia’s innovative growth strategy g) Convene cross-department collaboration in support of the strategy and contribute funding to

initiatives agreed with other Departments h) Represent the Province of Nova Scotia in collaboration with federal officials and with other

Provinces on aspects of the innovation strategy that require inter-governmental co-operation (e.g., in the context of the Atlantic Growth Strategy)

i) Represent the Province in collaboration with non-government stakeholders in cases where the relevant responsibility does not rest within one department or agency

j) Generally, act as an advocate for the innovation strategy across the Government of Nova Scotia.

To effectively coordinate and champion the innovative growth strategy, the Department of Business must be given financial resources to enable it to fund certain key initiatives both alone and in collaboration with other Departments.

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Source References

INTRODUCTION Figure 1a (Growth of GDP) Statistics Canada, Cansim table 384-0038

Figure 1b (Growth of Population) Statistics Canada, Cansim table 051-0001 Figure 1c (Growth of GDP per capita)

Statistics Canada, Cansim tables 051-0001 and 384-0038

Figure 1d (GDP per capita) Statistics Canada, Cansim tables 051-0001 and 384-0038 Box 2a Projected Population, 2015-41 – Three scenarios

Nova Scotia Department of Finance

Box 2b (Projected population of working age)

Nova Scotia Department of Finance

Box 3 (Productivity in the Business Sector)

Statistics Canada, Cansim 383-0029

Box 4 (Relative Labour Productivity Trends)

Statistics Canada, Cansim 383-0029; Centre for the Study of Living Standards

Box 5 (Apple Production in Nova Scotia)

http://www.albertafarmexpress.ca/daily/n-s-sweetens-orchard-renewal-program

Box 6 (2 Dimensions of Innovation) Report authors Box 7 (Complementary Business Strategies)

Report authors

Box 8 (Business R&D as % of GDP; US, Can, OECD)

Organization for Economic Cooperation and Development (OECD)

Box 9 (Corporate Profits – US and Canada)

Statistics Canada; United States Bureau of Economic Analysis

Box 10a (Business R&D as % of GDP - Provinces)

Statistics Canada, Cansim table 358-0161

Box 10b (Total R&D performed) Statistics Canada, Cansim table 358-0001 Box 11 (Four Strong Winds) Report authors Box 12 (Business Innovation Ecosystem)

Report authors

Box 13 (Innovation Strategy) Report authors Chapter 1: TALENT DEVELOPMENT Figure 1.1 (PISA Math Results: 2012)

http://www.oecd.org/pisa/keyfindings/pisa-2012-results.htm

Figure 1.2 (Immigration to NS if at National avg)

Statistics Canada, Cansim 051-0011

Figure 1.3 ( Box 1A (Coding as a Tool) Assembled from various sources by report authors Box 1B (Pioneers of Coding in Public Schools)

Assembled from various sources by report authors

Box 1C (Co-Op Education Incentive) Assembled from various sources by report authors Box 1D (Graduate to Opportunity) Assembled from various sources by report authors

Box 1E (Tech-Hire) Assembled from various sources by report authors Annex (Work Integrated Learning) http://co-op.bc.ca/sites/co-

op.bc.ca/files/2015/ACCE%20Matrix%20-%20final.pdf

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Chapter 2: RESEARCH EXCELLENCE Figure 2.1 (Higher ed R&D / GDP - Provinces)

Statistics Canada, Cansim 358-0162

Figure 2.2 (Sources of Higher ed R&D funding)

Statistics Canada, Cansim 358-0001

Figure 2.3 (Provincial funding of Higher ed R&D)

Statistics Canada, Cansim 358-0001

Figure 2.4 (NS Research Funding Organizations)

Assembled from various sources by report authors

Figure 2.5 (Strategic Triad) Report authors Figure 2.6 Business R&D vs R&D employment)

Organization for Economic Cooperation and Development (OECD)

Box 2A (PSE Advantage) Assembled from various sources by report authors Box 2B (HQP Assembly Line) Report authors Box 2C (Research Manitoba) Assembled from various sources by report authors

Box 2D (Commercialization Research)

Assembled from various sources by report authors

Box 2E (NSCC) Assembled from various sources by report authors

Box 2F (Mitacs) Assembled from various sources by report authors

Chapter 3: STARTUP ECOSYSTEM Kaufmann Foundation, The Importance of Startups in Job

Creation (2010) Figure 3.1 (Funding a Startup) Report authors Figure 3.2 (PSE Map) Report authors Figure 3.3 (Halifax Innovation District)

Report authors

Box 3A (Moreira Report) Entrevestor (2015). Atlantic Canadian Startup Data. Box 3B (Duruflé Report) G. Duruflé (2014, June). Fuelling Entrepreneurship and

Innvation. Box 3C (Innovacorp) Innovacorp Business Plan, 2015-16; Innovacorp Business Plan,

2016-17; Innovacorp Accountability Report, 2015-16. Box 3D (Build Ventures) Interview with P. Keefe, July 2016 Box 3E (Incubators and Accelerators)

Assembled from various sources by report authors

Box 3F (VCAP) Federal Budget 2015, Federal Budget 2016, Hurwitz (2013), Auditor General of Canada 2016, Woollett (2016)

Box 3G (Radian6 and Q1 Labs) Assembled from various sources by report authors Box 3H (Sandboxes) Assembled from various sources by report authors Box 3I (Sydney Innovation District) Assembled from various sources by report authors Box 3J (Acadia Entrepreneurship Centre)

Assembled from various sources by report authors

Annex (Sampling of Innovative Startups)

P. Moreira (2016, July)

Chapter 4: INNOVATIVE EXPORTERS 4.1 (Provincial Exports) Statistics Canada, Cansim 384-0038 4.2 (Principal NS Exports by Category)

Industry Canada

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4A (Riverside Lobster) Interview with F. Arsenault, August 2016 4B (Acadian Seaplants) Assembled from various sources by report authors 4C (Why SMEs Don’t Innovate) P. O’Farrell (1990, March). Small Manufacturing

Competitiveness and Performance: An Analysis of Matched Pairs in Nova Scotia and New England.

4D (Michelin) Assembled from various sources by report authors 4E (Payroll Rebate and Investment Attraction)

Assembled by report authors using NSBI program literature and other sources.

4F (Acadia Wine Institute) Assembled from various sources by report authors 4G (Cabot Links and Cliffs) Assembled from various sources by report authors 4H (Verschuren Centre) Assembled from various sources by report authors 4I (Carbon Cure) Assembled from various sources by report authors 4J (Two Innovative Bioenergy Startups)

Assembled from various sources by report authors

Chapter 5: OCEANS INDUSTRY CLUSTER

5.1 (Oceans Industry Cluster) Province of Nova Scotia 5A (Halifax Oceans Cluster) Assembled from various sources by report authors 5B (COVE) Assembled using program materials from COVE 5C (Dalhousie Oceans Research) Assembled from various sources by report authors

5D (Clearwater) Assembled using corporate literature from Clearwater; Reinhardt (2013)

5E (Louisbourg Seafoods) Assembled from various sources by report authors 5F (Cuna del Mar) Assembled from various sources by report authors Chapter 6: PROVINCIAL PRIORITY 6A (IPAC – TMRI) www.ipac.ca/documents/IM2016-NovaScotia.pdf 6B (TRIC – IWK) http://www.iwk.nshealth.ca/research/translating-research-care-

tric-healthcare-improvement-research-program 6C (Estonia e-Government) Estonia Ministry of Economic Affairs and Communcations

(2014, April); S. Sikkut (2014, June); S. Tamkivi (2014, January)

6D (Volta Outpost) Assembled from various sources by report authors

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Appendix I Research & Development and Commercialization (RDC) Working Group — Richard Florizone, President, Dalhousie University (Co-Chair)

— Ray Ivany, President, Acadia University (Co-Chair)

— Ava Czapalay, Senior Executive Director, Higher Education, Labour and Advanced Education (Co-Chair)

— Babatunde Awoyiga, Planning and Development Officer, Labour and Advanced Education

— Martha Crago, Vice-President, Research, Dalhousie University

— Kenneth Deveau, Vice-recteur à l'enseignement et recherché, Université Sainte-Anne

— Allan Eddy, Associate Deputy Minister, Natural Resources

— Mark Filiaggi, Associate Vice-President, Research, Dalhousie University

— Janine Fraser, Director, Community Development, ACOA

— Ann-Barbara Graff, Vice-President (Academic & Research), Nova Scotia College of Art and Design

— Stephen Hartlen, Executive Director, Industry Liaison and Innovation, Dalhousie University

— Ian Hill, Associate Vice-President, Research, Dalhousie University

— Richard Isnor, Associate Vice-President, St. Francis Xavier University

— Dale Keefe, Vice-President, Academic and Research, Cape Breton University

— Jeff Larsen, Executive Director, Innovation, Creativity and Entrepreneurship, Dalhousie University

— Gayle MacDonald, Associate Vice-President, Research, Mount Saint Vincent University

— David Mackinnon, Dean, Research and Graduate Studies, Acadia University

— Chuck Maillet, Director-General, Regional Operations, ACOA

— Mike McMurray, Director, Universities and Colleges, Labour and Advanced Education

— Gordon McOuat, Professor, University of King’s College

— Kent Roberts, Managing Director, Sector Development & Entrepreneurship, Department of Business.

— Loretta Robichaud, Director, Agriculture and Food Advisory Services, Department of Agriculture

— Wayne St-Amour, Executive Director, Innovation & Entrepreneurship, Nova Scotia Community College

— Kevin Vessey, Dean of Graduate Studies, Saint Mary’s University

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Appendix II Indicative List of Innovation Project Meetings Organization Individuals Met ABK Biomedical Bob Abraham, Daniel Boyd ACENET Anne MacKenzie and certain directors ACOA Peter Hogan, Janine Fraser, Dina Kalogeropoulos, Marianne

Etter, Chuck Maillet, John Kavanagh, Jeff Mullen Amirix Vemco Mark Jollymore All Presidents of Nova Scotia PSEs Atlantic Provinces Economic Council

Finn Poschmann

Build Ventures Patrick Keefe Business Development Bank of Canada

Thomas Park

Cape Breton Partnership Keith MacDonald Cape Breton University David Wheeler Cloud Kettle Greg Poirier Communitech Iain Klugeman Cuna del Mar Robert Orr Dalhousie Faculty of Computer Science

Andrew Rau-Chaplin

Dalhousie University Richard Florizone Martha Crago John Newhook Stephen Hartlen Matt Hebb Ian Hill Brendan Hailey

Deloitte Paula Gallagher Department of Agriculture Minister Colwell, Kim MacNeil, Bruce Osborne Department of Business Murray Coolican Department of Education Sandra McKenzie Department of Finance Thomas Storring, Alex Chute, Bill Stelle Department of Health Peter Vaugahn, Tracey Barbrick, Perry Sankarsingh Department of Internal Services

Jeff Conrad and Executive Committee

Department of Labour and Advanced Education

Duff Montgomerie

Elizabeth Beale (Former President and CEO) of APEC

Elizabeth Beale

East Valley Ventures Gerry Pond

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Entrevestor Peter Moreira Genome Atlantic Steve Armstrong High Liner Foods Henry Demone Innovacorp Stephen Duff, Rod Burgar, Jeff Grammer, Bob Pelley, Paul

Richards Innovation, Science and Economic Development Canada

John Knubley, Janine Fraser, Elder Marques, David MacFarlane, Jeff Waring, Howard Waring, Patricia Hearn, and other senior staff

IORE Jim Hanlon IWK Health Centre Patrick McGrath Just Innovations, COVE Feasibility Study Author

Justin Manley

Louisbourg Seafoods Adam Mugridge, Glen Fewer Maritime Travel Rob Dexter Mentorcamp Permjot Valia Metamaterials George Palikaras Mitacs Marc-Etienne Ouimette, Brennan Gillis Nova Scotia Business Inc. Laurel Broten, Peter MacAskill, Beth Girard Nova Scotia College of Art and Design

Dianne Taylor-Gearing and Dr. Ann-Barbara Graff

Nova Scotia Community College

Don Bureaux, Wayne St-Amour

Nova Scotia Health Research Foundation

Krista Connell, Marli MacNeil

Nova Scotia Tourism Agency

Fred Morley

NRstor Annette Vershuren Office of the Premier Laurie Graham, Ryan Grant, Kristan Hines, Bernie Miller Office of the Prime Minister of Canada

Michael McNair

Oxford Frozen Foods David Hoffman Pelorus Tom Hayes Perennia Jo Ann Fewer Provincial RDC Committee QRA Jordan Kyriakidis Quebec City Conference Gilles Duruflé Queen’s University School of Policy Studies

Eugene Lang

Riverside Lobster Frank Arsenault Scotian Gold Larry Lutz Shaw Group Bert Frizzell Springboard Atlantic Chris Mathis Tom Traves (Former Pres Tom Traves (Former President, Dalhousie University) Turbulent Research Chris Loadman

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Verschuren Centre for Sustainability in Energy and the Environment

Andrew Swanson

Volta Labs Jesse Rodgers, Melody Pardoe

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Appendix III Biographies Dr. Peter Nicholson��� Educated in physics (BSc, MSc, Dalhousie) and mathematics (PhD, Stanford), Dr. Nicholson has served in numerous posts in government, business, science, and higher education. His public service career included positions as Deputy Chief of Staff (Policy) in the Office of the Prime Minister of Canada; Member of the Nova Scotia Legislature; Clifford Clark Visiting Economist in Finance Canada; and Special Advisor to the Secretary-general of the OECD in Paris. Dr. Nicholson's business career has included senior executive positions with Scotiabank in Toronto, BCE Inc. in Montreal, and H.B. Nickerson & Sons in North Sydney. Dr. Nicholson began his career in the academic sector where he taught computer science at the University of Minnesota (1969-73). He was an original member of the Canadian Prime Minister's National Advisory Board on Science and Technology, the founding Chair of the Board of the Fields Institute for Research in Mathematical Sciences and was the founding Chair of the Members of the Canada Foundation for Innovation and of the Millennium Scholarship Foundation. Between 2006 and 2010 he was the founding President and CEO of the Council of Canadian Academies, where he oversaw several expert panel studies on innovation in Canada. Dr. Nicholson is a Member of the Order of Canada, and has received honorary degrees from Acadia, Dalhousie, the University of Québec, McMaster, and Queen’s. Jeff Larsen Jeff Larsen is the Executive Director of Innovation, Creativity and Entrepreneurship at Dalhousie. He has served in Executive Director roles at the Province of Nova Scotia, most recently in the Office of Planning and Priorities, and before that in the Investment and Trade division of Economic Development. His work at the Province also included acting as the CEO of both ReNova Scotia Bioenergy Inc. and the Strategic Opportunities Fund Inc., and as a director of DSME Trenton Inc. His work at the Province has focused on innovation, startups, entrepreneurship, education, foreign direct investment, trade, as well as knowledge- and technology-based industries. Jeff has practiced law at McInnes Cooper in Halifax, and in Toronto with Fasken Martineau and CIBC. He has also held senior positions in the investment sector as Vice-President and General Counsel of Halifax-based Clarke Inc. and as Executive Director of Business Management and Chief Compliance Officer with CIBC Asset Management Inc. in Toronto. Jeff also has entrepreneurial and management experience with new businesses in the energy sector, including as a co-founder of Seaforth Energy, Watts Wind and Katalyst Wind. He has been on the Board of Directors of private and TSX-listed public companies, and remains active in his community through volunteer efforts. Jeff holds a Bachelor of Arts from McMaster University, a Juris Doctor from the University of Toronto, a Master of Laws from Osgoode Hall Law School, York University and an MBA from Imperial College, University of London. Jeff has taught Commercial Law Faculty at

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Saint Mary’s University and was previously the Assistant Director and Guest Lecturer in the Osgoode Hall Law School Master of Laws (Securities Law Program). He was also a guest lecturer at the University of Malawi Law School in October, 2007. Jeff is the co-editor of the book Corporate Governance and Securities Regulation in the 21st Century (with Poonam Puri). Alexander Ripley Alexander Ripley is a recent graduate of the MA program in Political Science at Dalhousie University. He also holds a BA (Hons.) from Trinity College at the University of Toronto, and has completed coursework at the University of Edinburgh. Alexander’s research interests are presently concerned with the implications of component trade, financial innovation, and complex economic interdependence for mainstream international relations theory. Since 2014, he has also been a member of the residence life staff at the University of King’s College, and has provided instructional and research support for the Department of Political Science and the College of Sustainability at Dalhousie. Erik Fraser Erik Fraser was born in Halifax, Nova Scotia. He holds a BA in environmental studies and international relations from Mount Allison University, and an MSc in education (Higher Education) from the University of Oxford. He recently graduated with an MPA from the Dalhousie School of Public Administration where he was the 2016 recipient of the IPAC Lieutenant Governor’s Academic Award of Excellence. Erik’s interdisciplinary background in higher education, environmental studies, public administration, economics, and health has been developed throughout his academic and professional career.

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Appendix IV

NOVA SCOTIA’S PERSPECTIVE ON THE ATLANTIC GROWTH STRATEGY

The Atlantic Growth Strategy is a partnership between the Government of Canada and the four Atlantic Provinces. It is intended to drive economic growth in the region by implementing targeted, evidence-based actions under the following five priority areas (the “Atlantic Growth Priority Areas”): Skilled workforce/immigration; Innovation; Clean growth and climate change, Trade and investment; and Infrastructure. The Government of Canada is also developing an Innovation Agenda designed to build an inclusive and innovative Canada. The Innovation Agenda has six priority areas (the “Innovation Agenda Priority Areas”): an entrepreneurial and creative society; global science excellence; world-leading clusters and partnerships; growing companies (e.g. startups and scale-ups) and accelerating clean growth; competing in a digital world; and improving ease of doing business. The Province of Nova Scotia, in collaboration with the three other Atlantic provinces, should work with the federal government’s Department of Innovation, Science and Economic Development (ISED) and the Atlantic Canada Opportunities Agency (ACOA) to implement the following initiatives from the Innovation Strategy, all of which directly align with one or more of the Atlantic Growth Priority Areas and the Innovation Agenda Priority Areas. Note that this document does not address immigration. Although Atlantic Canada needs more immigrants and international students to enhance the base of technical and entrepreneurial skills and to help offset the economic impact of a declining, ageing population, the Atlantic Growth Strategy has already announced a pilot project with ambitious targets, and therefore this document focuses on other areas. 1. Oceans Super Cluster Canada has a world class Oceans Cluster (with poles in Halifax and St. John’s) which is part of an east coast “super cluster” that includes an agglomeration of world-class research facilities and ocean tech companies from Atlantic Canada, and which stretches along the New England coast to south of Boston. Canada’s contribution to the super cluster needs to be upgraded to more nearly match the depth and capability of the US component, and the naval ships contract along with the recent investments in the Centre for Ocean Ventures and Entrepreneurship (COVE) and the Ocean Frontier Institute (OFI), to create a genuinely world-class centre of ocean innovation, but only if the recent momentum is sustained. The federal government should identify a portion of the funding earmarked for innovation networks and clusters ($800M over the next four years) for the Atlantic Ocean Cluster. Initially this should include, amongst other things, significant

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operational and program funding to “kickstart” COVE. It should also include funding to support the development by COVE of functions analogous to that of the Consortium for Research and Innovation in Aerospace in Quebec (CRIAQ) in the Montreal aerospace cluster, including a collaborative industry-led applied research consortium for Atlantic Canada in ocean technology at COVE. This funding should also support an Ocean Sustainability Innovation Fund that would support, on a competitive basis, projects that demonstrate innovative approaches to oceans-related sustainability issues. In addition, to encourage further development of projects that demonstrate good commercial potential in the ocean sector, the government should permit under the Industrial and Technological Benefits (ITB) and Value Proposition (VP) rules a “multiplier” for ITB expenditures related to projects that support the Ocean Cluster, including the operational and program costs of COVE, the collaborative industry-led applied research consortium for Atlantic Canada in ocean technology at COVE, and the Ocean Sustainability Innovation Fund. 2. Atlantic Startup Ecosystem The Atlantic region’s startup ecosystem straddles a thinly-populated geography with primary nodes in seven cities—St. John’s, Charlottetown, Saint John, Moncton, Fredericton, Sydney and Halifax. Each has its own local ecosystem and the whole is supported by several Atlantic-wide institutions and programs—for example: Build Ventures, Propel, Gerry Pond’s East Valley Ventures, First Angels Network, ACOA’s Atlantic Innovation Fund (AIF) and Business Development Program (BDP), and other federal innovation supports delivered through the SR&ED tax credit, IRAP and the research granting councils. The Atlantic Startup Ecosystem has achieved remarkable successes recently — roughly $1.5 billion realized in several prominent “exits” over the past five years: ($540 million for Ocean Nutrition; $500 million for Q1 Labs; $340 million for Radian6; $70 million for GoInstant; $20 million for Compilr. Nonetheless, a bias against Atlantic Canada by both public sector and private venture investors nevertheless persists, reflecting the region’s “have-not” reputation. While the exceptional quality of talent in the region is acknowledged, the fact remains that the pools of potential angel, seed and venture capital and related expertise are still shallow. As part of the Atlantic Growth Strategy, the federal government should develop a program specific to these challenges in Atlantic Canada. The Atlantic Growth Strategy should leverage federal funding under the Innovation Agenda and other programs to support the following: - Atlantic Incubators and Accelerators. Eligibility for ACOA funding should include

infrastructure, operational and programming for private sector-led incubators, accelerators, and associated research facilities to ensure adequate funding for Volta, Propel, Navigate and other key players in the Atlantic innovation ecosystem (e.g. Venn, Planet Hatch, Common Ground, LaunchPad PEI).

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- Atlantic Angel Investor Tax Credit. The federal government and Atlantic provinces should introduce an Atlantic angel investor tax credit such as that proposed earlier for Nova Scotia, which would apply to any investor regardless of geography with the federal government funding the non-resident portion of the refundable tax credit.

- Atlantic Seed Capital Fund. The federal government and the other provinces should co-invest in the proposed $25 million New Fund being catalyzed by Nova Scotia, and turn it into an Atlantic Canada regional seed capital fund rather than a provincial seed capital fund.

- Atlantic Early Stage Venture Capital Fund. The federal government should continue to fund a private-sector led Series A venture capital fund in Atlantic Canada. This could be done through further direct funding of Build Ventures, but ideally it would be supported through a new Atlantic-based VCAP fund-of-funds. BDC should consider re-opening an office in Halifax to support investments by BDC’s IT, health and life sciences, and cleantech venture capital funds.

- Atlantic Late Stage Venture Capital Co-investment Fund. The federal government should develop a Series B and C co-investment fund, managed by ACOA, should be established, initially on a pilot basis, to co-invest (in Atlantic Canadian companies) on preferable terms with venture capital firms from outside the region. An Atlantic-based VCAP fund could also invest in private-sector led seed funds in Atlantic Canada, such as the proposed New Fund, Pelorus, and East Valley Ventures.

3. Clean Energy Fund and Cleantech Adoption Climate change and environmental sustainability will be a mega-trend of the 21st century, changing the way we live and work and disrupting existing industries worldwide, but creating in their place a healthier, more efficient and sustainable economy. Although the scale and scope of change will disrupt certain industries, particularly in carbon-intensive sectors, it will also create unprecedented opportunities for new businesses and jobs in a low-carbon economy. Cleantech presents new opportunities to create innovative businesses but can also contribute to the efficiency of established businesses—e.g., by cutting energy or material consumption. Sometimes a cleantech solution will be needed to meet increasingly stringent regulatory requirements, or a de facto requirement to be acceptable to consumers. For these reasons, the diffusion and adoption of cleantech by businesses and institutions in Atlantic Canada can boost competitiveness while at the same time contributing to public environmental objectives. In the context of the Paris Agreement on Climate Change (in which Canada committed to cut greenhouse gas (GHG) emissions by 30% below its 2005 level no later than 2030), the federal government has announced that all Provinces must agree to impose “a price on carbon” or face a federal requirement to that effect. Nova Scotia has in fact already reduced its GHG emissions by 30% below their 2005 and has increased to 27% the contribution of renewables in its electricity mix and is on track to hit 40% by 2020. The further imposition of a carbon price—via a new tax

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or cap-and-trade regime—would increase the province’s already high power prices, thus penalizing one province that has already met the 2030 reduction target. The Atlantic Growth Strategy aims to develop a clean energy plan for Atlantic Canada by the end of 2016, and this plan should include a focus on cleantech opportunities. The federal government, in Budget 2016, committed to invest more than $1 billion over four years, starting in 2017-18, to support clean technology, including in the forestry, fisheries, mining, energy and agriculture sectors. The federal government also appears to recognize the importance of technology diffusion to support GHG reduction, and has proposed a two-year $2 billion Low Carbon Economy Fund to achieve significant reductions. A portion of these commitments, via the Atlantic Growth Strategy, would provide a fiscal foundation for an Atlantic Cleantech initiative as outlined below. In the context of the Atlantic Growth Strategy, the federal and provincial governments should commit to a multi-year cleantech strategy that would support implementation in Atlantic Canada of the new federal climate change framework. The strategy, supported by dedicated funding from the federal government, would aim to develop cleantech research strengths into export opportunities areas that have strong commercial promise, including smart grid, energy storage, tidal turbines and bioenergy. As a first step, the post-secondary institutions should be asked to strike a group with representatives of industry (including the multiple electric utilities in the four provinces) and relevant government agencies, to develop a 5-year plan for submission to ACOA and the federal government. To encourage more rapid adoption and diffusion of cleantech, the federal government could create an Atlantic-wide “Cleantech Adoption Program” delivered through IRAP and ACOA; this could also involve provincial partnerships with, for example, Invest Nova Scotia, NSBI and/or Efficiency One (formerly Efficiency Nova Scotia) in Nova Scotia. The Atlantic Growth Plan and the Low Carbon Economy Fund should support the Atlantic Cleantech Adoption Program. 4. R&D, Innovation and Exporters Export performance is the acid test of competitiveness over the longer term as the impact of fluctuations in currencies and business cycles tend to average out. Successful exporters, almost by definition, tend to be innovative and growth-oriented and create more jobs. In short, exporters are the principal source of dynamism in an economy. Sustained export success depends on maintaining global competitiveness which depends on a combination of innovation (to make one’s product more attractive) and productivity (to make it more cost-efficiently). Businesses in Nova Scotia, and indeed in Atlantic Canada, invest less in R&D, productivity and innovation than their counterparts in Canada, and not surprisingly have much lower exports.

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Some of the most successful approaches around the world for incenting business-driven R&D – Israel’s OCS, Finland’s Tekes, Enterprise Ireland, U.S. SBIR--provide generous grants to business (50% or more) for innovation, including both for R&D and for subsequent commercialization. The emphasis in Canada has been on tax-based assistance (SR&ED credit) with a repayable feature for early-stage companies that may not have taxable income. Several observers have suggested that Canada’s R&D assistance should be re-balanced with a much greater proportion delivered via targeted grants. In that spirit, through the Atlantic Growth Strategy, changes could be made to the AIF Program to support R&D and innovation projects between $500,000 and perhaps $5 million (increased from $3 million currently). In addition, the program could be applied with greater flexibility for business-driven innovation projects that are further toward the “development” end of the R&D continuum and the incentive for participation by business could be increased so that up to 50% of the provisionally repayable loan could be a grant, with a greater percentage in the case of startups, resource-based or rural industries. Adoption of digital as well as information and communications technologies (ICT) is a key enabler of competitiveness. Businesses in Atlantic Canada invest less in digital technologies than Canadian firms generally, and Canadian firms have long trailed far behind the US. In order to support the adoption of digital technology by Atlantic Canadian businesses, the Atlantic Growth Strategy should adopt a program to help fund ditigal technology adoption by Atlantic Canadian firms, similarly to the former Digital Technology Adoption Pilot Program (DTAPP). A core objective of an innovation strategy for Nova Scotia, and indeed for Atlantic Canada, must be to improve substantially the export performance of small and medium-size enterprises (SMEs), particularly in the traditional resource sectors, in manufacturing, and in tourism (understood as an export earner). The Innovation Strategy recommends the creation of an Export Accelerator program to significantly increase the export ambition and capabilities of selected SMEs through an intensive multi-year program of export strategy development and tutelage led by world-class experts. Although the Export Accelerator Program is a program recommended for Nova Scotia with 50% contribution to the program by ACOA, but it would have benefits across Atlantic Canada and could be expanded as part of the Atlantic Growth Strategy. 5. Rural and Resource-based Innovation The population of most rural areas throughout North America has been in decline for decades as the structure of the economy has evolved from its former base in land and resources toward services and amenities that concentrate naturally in urban areas. This long-term movement of people has been amplified by the extraordinary productivity gains brought about by innovation in agriculture and all other resource-based and manufacturing industries. While these facts of history must be taken as given, the land and sea-based activities in Atlantic Canada are far too valuable, in both economic and socio-cultural terms, to be simply left to decline past the point of

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no return. But since the march of technological innovation cannot be turned back, it needs instead to be embraced to enable much greater value to be earned from the region’s resources, among which must be included great natural beauty and cultural charm. By bringing innovation and export market development fully to bear on Atlantic Canada’s resources, their value can be vastly increased so as to generate the income growth needed to stabilize, and then reverse rural decline. There are many examples of businesses in rural Atlantic Canada that demonstrate what success can look like. They show that if we are held back, it is not for want of possibility. The Atlantic Growth Strategy has articulated an approach to rural development that mirrors themes emphasized throughout this report. The Strategy, in respect of Atlantic Canada’s rural and small town economy, is focused on: • supporting innovation and spurring value-added opportunities in established industries like

the fishery, agriculture, minerals and forestry which remain foundations of Atlantic Canada’s economy;

• enhancing research and innovation in areas such as biosciences, aquaculture, ocean technology, renewable energy, fisheries, agriculture and forestry;

• investing in regionally significant infrastructure projects, including broadband connectivity; and

• developing a strategic and collaborative approach to tourism. 6. Creative Industries and Tourism Fund The Atlantic Growth Strategy identifies an opportunity for a more strategic and collaborative approach to tourism, and more generally, to development of the cultural industries. This represents a significantly under-exploited opportunity in Atlantic Canada. But it will require a major upgrade of the visitor experience with much greater emphasis on experiential elements including high-quality local cuisine; wilderness and coastal recreation; interactive forms of engagement with the region’s history; more events that showcase the region’s cultural richness. When considering government investments in tourism and cultural development, it should be recognized that the same investments that will attract more visitor expenditure from outside the region will also make Atlantic Canada even more appealing to its own residents. This would, at the same time, greatly enhance the region’s attractiveness to what Richard Florida has called the “creative class”-- those individuals who are at the cutting edge of innovation. In the context of the Atlantic Growth Strategy, the federal government should establish a “Creative Industries and Tourism Innovation Fund”. In partnership with the Provinces on a shared-cost basis, the Fund would support proposals (referenced below in a Nova Scotia context) to: a) Establish new or enhanced festivals and events, with the goal of eventually having at least

two signature events—e.g., of the calibre of Celtic Colours or the Halifax Jazz Festival--each

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month from May through October; b) Create a select number of signature destinations—e.g., of the calibre of the world-ranked

Cabot Links and Cabot Cliffs golf courses; c) Bring the province’s wine, craft beer, and culinary experiences to a level that is

unequivocally world-class. (In view of the increasing popularity of high-quality cuisine, particularly using the freshest local ingredients, Nova Scotia has an opportunity to establish itself as a global culinary destination based on an exceptional variety of seafood, boutique agriculture, and local game);

d) Improve air access with more convenient routes to larger urban centre in Atlantic Canadas; e) Establish “Creativity Districts” in strategically located communities that have high potential

for tourism development and for attracting innovative businesses and exceptionally creative individuals--for example, Lunenburg (as a World Heritage Site), Wolfville (as a university town and centre of a developing wine industry)

7. Promoting Diversity and Job-readiness in Technology-intensive Occupations The STEM subjects underpin an increasing number of occupations that are in high demand now and in the future—for example; skilled trades, engineers, computer scientists, data analysts, and health care professionals. Meanwhile, the employment rate among “under-represented” groups in Atlantic Canada is unacceptably low in general and even more so in occupations that require STEM skills at the high school level or beyond. There is a double cost as a result—groups that are already disadvantaged miss out on opportunities for many of the good jobs of the future, and technology-intensive occupations that face looming labour shortages have less potential talent available. These shortcomings can be at least partly addressed with programs that combine employment opportunity with tightly-targeted training for job readiness in occupations that require various levels of ICT competence. As part of the Atlantic Growth Strategy, the federal government, through ACOA, should work on an Atlantic-wide basis with the private sector, departments of education, and post-secondary institutions to develop targeted training programs to encourage and increase employment in ICT-intensive occupations for under-represented groups, including First Nations, people of colour, and persons with disabilities.

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Appendix V Training in Sales – A Draft Syllabus Effective sales training is vital for business growth but has been frequently identified as a significant weakness in early-stage companies in Nova Scotia (and more generally in Canada). In order for SMEs and larger firms in Nova Scotia to grow and expand export markets, they need employees with top-notch sales skills. Academic programs across the province are currently lagging in providing adequate sales training to students, even those in business and commerce programs. UNB Saint John has started to offer sales courses for MBA candidates, but has yet to introduce the subject at the undergraduate level. Included below is a draft syllabus for a first-year Bachelor of Commerce course in sales that would additionally be open to employees of Nova Scotian SMEs. The course was designed by Greg Poirier, President of Cloud Kettle, as an introduction to the theory and practice of sales. It is designed to teach students how to analyze, research, adopt best practices, and improve confidence. Mr. Poirier and his colleagues have offered to provide voluntary support for the course if it is adopted by a Nova Scotian PSE. Business-to-Business Sales and Marketing in a Digital World: Basic Level Instructor: Existing Faculty or Business Leader Welcome to B2B Sales and Digital Marketing a half semester certification. During this intensive set of workshops, you will learn: • What early-stage companies need to know before beginning sales and marketing • How to configure, customize and implement a Customer Relationship Management (CRM)

tool • The basics of lead generation-focused digital marketing • The sales lifecycle and how to use a CRM and Marketing Automation to shorten the length

of time it takes to move a prospect through it. • How to begin pursuing sales for an organization and how to build the tools necessary to

achieve sales

Objectives This set of workshops is designed to help early stage B2B companies understand the importance of sales and marketing activities in laying a solid foundation for revenue growth. It provides an unique opportunity for students to gain hands-on experience in sales. The course allocates time equally between learning of theory and practice. Throughout the course, each participating company will build out its own customized CRM, add leads to it, create sales enablement materials. The objective is that each participant will complete the course with advice and actual tools needed to immediately begin selling their products. Material by Week: 1. What you need to know before you can market and sell your organization

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2. The Customer Lifecycle and the CRM Ecosystem 3. Minimal Viable Sales and Marketing 4. Generating Leads through Inbound Marketing 5. Sales Enablement 6. Qualifying and Working leads

Marking Scheme This is a pass/fail course and individuals who successfully complete the program will receive a certificate in start-up sales and marketing.

• Assignments and Reflections on class activities - 70% • Attendance and Participation - 30%

Textbook There is no textbook for this course. Students will be assigned readings by the instructor for a collection of online article and should ensure that all readings are completed as class participation involves hands-on work.

Sustainability Note: This document was printed on FSC® certified paper, in alignment with our standard to use products that come from a sustainable and responsible source.

FIELD NOTES